Smooth Digestion of 30-year Supply, But Less Demand Witnessed

30-year supply sees smooth digestion as the low-price meets dealer expectations (which stood at 102.95, per the BBG poll). However, the cover ratio at 3.076x ticked down versus 3.489x at last month’s auction. It is important to note however that the May cover ratio was the highest level observed at a 30-year auction since January 2022. The auction tail was also longer than the past two auctions.

• The similarity of the outright yield, a slightly steeper yield curve and a further cheapening of the 30s in the 20-/30-/40-year butterfly all appear to have contributed to the takedown this month’s 30-year auction, although demand did taper from the previous outing.
• The capital reallocation trend by local investors from foreign markets towards the longer end of the JGB curve is also likely to have been in play today, but seemingly less so than the May auction.
• JGBs futures have initially gapped lower after the lunch break, reaching a new Tokyo session low of 148.61, +3 compared to settlement levels.
• The 30-year JGB initially cheapened post-auction, although it has subsequently reversed back to little changed in early afternoon Tokyo trade at 1.268%, 1.2bp richer on the day.