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Very Poor Digestion of 20-year Supply


20-year supply sees very poor digestion as the low price fell well below dealer expectations (which stood at 96.75, per the BBG poll). The cover ratio at 2.795x also declined sharply versus 3.382x at last month’s auction. The auction tail was also significantly longer than the past auction, rising to the highest level since at least until 2018.

  • The highest outright yield since February and the steepest 10/20 curve since March were unable to facilitate a successful takedown of this month's 20-year auction.
  • As flagged in the auction preview, recent negative sentiment towards longer-dated global bonds appear to have weighed heavily on the bid.
  • JGBs futures have initially gapped sharply lower after the lunch break, reaching a new Tokyo session low of 146.26. At 146.37, JBU3 is -25 compared to settlement levels.
  • The 20-year JGB initially cheapened 4bp in post-auction trade.

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