The Japanese Ministry of Finance.......>

JGBS AUCTION: The Japanese Ministry of Finance (MOF) will today sell Y1tln of

0.60% 20-Year bonds, the second reopening of issue JGB161. At the previous

auction on July 13 the MOF sold Y812bln in competitive sale, drawing an average

yield of 0.606%, with a 0.08 tail, a low price of 99.80 where 34.878% of bids

were allocated, covered 4.189x. The issue currently yields 0.558%, up 0.9bp on

the day as the long end sells off pre-auction, but 4.8bp lower than July sale. 

- Barclays see 20's as rich at these levels and do not expect strong demand,

noting that though the carry & roll is still attractive in the sector (last

2.14) they see carry trades in 20's as being unwound ahead of Jackson Hole.

- Carry and roll demand is resilient with volatility still subdued in JGB's

(last at 1.71 after hitting an all time low of 1.32 on Aug 2). Investors will be

wary of declines in yields in the sector as a flag for potential BoJ purchase

reduction which will make the paper less attractive.

- The 10/20-Year spread is around 10bp off highs as investors are forced into

duration due to subdued yields, while Japanese corporate CDS's have risen which

should also support demand.