PREVIEW: Looking Beyond Outright Valuation In 10s

The Japanese MOF will today sell Y2.6tn of 10-Year JGB's opening JB#360. The MOF last sold 10-Year debt on September 1, the auction drew cover of 3.154x at an average yield of 0.034%, average price of 100.64, high yield of 0.045%, low price of 100.53, with 21.1681% of bids allotted at the high yield.

• Some caution may be warranted at today's auction, with 10-Year yields sitting a shade above 0% in outright terms which is a little richer than the prevailing yield seen at the previous auction, although the allure of a fresh line via auction may offset at least some of the valuation worry.
• Some may look to counter the recent modest steepening vs. 5s via entry at this auction.
• Also worth noting that some may look to enter long 10-Year positions via asset swaps, which look cheap, if we discount the March vol.
• All in all, participants will weigh up relative value appeal vs. some worry surrounding outright yield levels.
• Results due at 0435BST/1235JST.