Smooth Digestion of 30-year Supply

30-year supply sees smooth digestion as the low-price tops dealer expectations (which stood at 103.00, per the BBG poll). The cover ratio at 3.489x ticked up versus 3.186x at last month’s auction, which had exceeded the 6-auction average of 3.10x.

• A cheapening in the 20-/30-/40-year butterfly appears to have aided the takedown this month’s 30-year auction.
• Still, the cover ratio, at 3.486x, wasn’t particularly firm with the flatness of the curve and the richening in outright levels possibly keeping some investors on the sidelines.
• The recent string of announcements from local participants regarding portfolio adjustments out of hedged offshore debt in Yen bond holdings may have also proved to be a supportive factor, although it didn’t play heavily at this week’s 10-year auction.
• JGBs futures initially gapped higher after the lunch break, partly reversing the slide late in Tokyo morning trade.
• The 30-year JGB richens post-auction, taking out the morning’s best level, with the yield 1bp lower than the level prevailing before the results were released.