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PREVIEW: Focus On Carry


The Japanese MOF will today sell Y1.2tn of 20-Year JGB's opening JB#174. The MOF last sold 20-Year debt on September 10, the auction drew cover of 3.693x at an average yield of 0.408%, average price of 99.85, high yield of 0.413%, low price of 99.75, with 75.5975% of bids allotted at the high yield.

  • The lure of new paper available at auction, coupled with 20-Year benchmark yields around 0.40% is expected to generate at least solid demand at this offering.
  • ASW spreads are back from extremes, although some may look to enter longs via a 10-/20-/30-Year butterfly strategy. Elsewhere, most desks have pointed to the relative carry appeal of 20s on the curve as a supportive factor ahead of auction.
  • It would also seem that the further fiscal loosening, scheduled for calendar 2021, will be fairly modest in relative size (when compared to efforts made earlier this calendar year), so this shouldn't be a limiting factor re: demand at upcoming long dated auctions.
  • Desks suggest that there is nothing in the way of any real tangible short covering needs in the sector.
  • Results due at 0435BST/1235JST.
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