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Solid Demand For 20-year Supply

JGBS

20-year supply sees smooth digestion as the low price exceeded dealer expectations (which stood at 101.65, per the BBG poll). The cover ratio at 3.688x shifted to the highest level in a year versus 2.963x at last month’s auction despite the outright 20-year yield level and richness of the 20-year on a 10/20/30-year butterfly.

  • As mentioned in the preview, Japanese investors, particularly domestic life insurers and pension funds, are showing a trend of allocating capital to the super-long end of the JGB curve in response to elevated FX-hedging costs in the new fiscal year. The strong demand observed at the recent 30-year auction further supports this observation.
  • JGBs futures have gapped higher after the lunch break, adding to the reversal of fortune seen in Tokyo morning trade.
  • The 20-year JGB yield is 2.0bp lower post-auction, sitting -2.5bp on the day at 0.989%.
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