PREVIEW: Supply Worry Vs. Supportive Factors

The Japanese MOF will today sell Y3.0tn of 2-Year JGB's opening
#JB415. The MOF last sold 2-Year debt on June 30, the auction drew
cover of 4.683x at an average yield of -0.136%, average price of 100.474,
high yield of -0.131%, low price of 100.465, with 60.4829% of bids
allotted at the high yield.

• Outright, 2s sit towards the cheaper end of the range seen since March.
• The 2-/5-Year yield spread hovers within the lower end of the range
  observed since March, which could trigger the entry of some curve plays via auction. 2-Year swap spreads also sit closer to the tighter end of the range observed since the march vol., which may also foster some interest. Adjustments in Rinban operations have also been supportive for the space, with the BoJ adopting a more active approach in the ops in recent times, owing to the increased supply burden. Still, that same supply burden may present some headwinds for the auction owing to the growing post-COVID-19 fiscal demands, and worry surrounding further stimulus.
• Results due at 0435BST/1235JST