Soft 40-Year Supply, BoJ In With Second Round Of Fixed Rate Operations

A particularly soft round of 40-Year JGB supply there, with the high yield coming in 5.5bp above wider expectations, proxied by the BBG dealer poll. We also saw the cover ratio crater to the lowest level observed at a 40-Year auction since ’11. We would suggest that the ongoing market vol. and the lack of relative control exerted by the BoJ in this area of the curve deterred prospective bidders, while others were not willing to aggressively bid for access to the line. The curve has steepened further post-auction, with 40s now 6bp weaker on the day, while futures have softened to last trade -17 (well within the confines of the range observed since yesterday’s Tokyo close). 10-Year JGB yields continue to operate just above 0.250%, with the combination of a soft 40-Year auction and no pullback in 10-Year JGB yields seemingly dragging the BoJ back in to conduct a second round of fixed rate operations to enforce the upper end of its permitted 10-Year JGB yield trading band.