PREVIEW: Liquidity Enhancement Auction For OTR 15.5- To 39-Year JGBs Due

The Japanese Ministry of Finance (MOF) will today sell Y500bn of JGBs with 15.5-39 Years until maturity in a liquidity enhancement auction. JB#1-14, #28-74 & #164-180 will be on offer.

• The previous enhanced liquidity auction covering these maturities was held on June 14. The auction saw Y499.3bn issued and was covered 1.952x at an average spread of +0.084%, and a high spread of +0.099%, with 13.5446% of the bids allotted at the high spread.
• The previous auction saw the typical bunching when it came to the bonds that experienced higher levels of demand, with JB36-38 accounting for ~Y132bn of the allotment. It also came at a time whereby international investors were challenging the BoJ’s YCC settings, hence the wide spreads and low cover (meaning those metrics won’t provide much in the way of meaningful comparable inference).
• The recent lack of long end demand, viewed via the curve steepening observed during the last few days, may be a warning sign for this auction, although the cheapening may provide more enticing levels for participants to enter.
• Results due at 0435BST/1335JST.