Smooth Enough Digestion Of 20-Year JGB Supply, Despite Mixed Internals

The latest round of 20-Year JGB supply passes smoothly enough, as the low price meets wider expectations (as proxied by the BBG dealer poll), although the price tail is by no means tight (albeit incrementally tighter than that seen at last month’s 20-Year auction), while the cover ratio printed below the recent average.

• There has been nothing in the way of meaningful market reaction post-supply, with little net movement in cash 20s & JGB futures.
• As we suggested ahead of the auction, we believe that domestic life insurers and pension funds will have provided a baseline level of demand given the lack of attractive opportunities in the international bond arena at present (owing to ongoing market vol. & elevated FX-hedging costs), while we believed that the recent outright and relative richening of 20s would cap demand, which seems to have played out.
• A reminder that there was a lack of pre-auction concession, with signs of super-long JGB demand from the domestic life insurers and pension fund cohort apparent in recent days.