PREVIEW: Relative Plays Seemingly More Attractive Than Outright

The Japanese MOF will today sell Y2.6tn of 10-Year JGB's re-opening #JB359. The MOF last sold 10-Year debt on July 2, the auction drew cover of 3.661x at an average yield of 0.058%, average price of 100.41, high yield of 0.060%, low price of 100.39, with 48.3429% of bids allotted at the high yield.

• Outright levels may not be that attractive for domestic investors at the upcoming auction, with yields under 0.03%, within close proximity to resistance at 0.00%.
• Looking at relative propositions, the 5-/10-/20-Year fly hovers just shy of the middle of the range observed since the start of April, however, the recent paring back of the 10-/30-Year yield spread from steeps may allow those looking for supply related pressure to re-establish itself in the longer end as we move through auction cycles to re-enter steepeners (although the 10-30-Year yield still sits much closer to the steeper end of the recent range, as opposed to the flatter end given the fiscal dynamics in play).
• Several desk notes point to a lack of short interest into auction, leaving user demand as a key determinant re: the strength of the auction.
• ASW dynamics may also provide scope for demand at auction.
• Results due at 0435BST/1235JST.