JGBS AUCTION: 30Y Supply To Test Investor Appetite

The Japanese Ministry of Finance (MoF) will today sell Y2.6tn of 10-year JGBs. The MoF last sold 10-year debt on 8 May 2025: the auction drew cover of 2.5440x at an average yield of 1.274%, an average price of 101.10, a high yield of 1.294%, a low price of 100.92, with 44.9598% of bids allotted at the high yield.

• Last month’s auction revealed weak results, with the low price falling short of expectations, according to the Bloomberg dealer poll. Moreover, the cover ratio decreased to 2.5440x from 3.1475x, and the tail lengthened to 0.18 from 0.11.
• This performance came with an outright yield 10-15bps lower than the prior month and approximately 30bps below the recent cyclical high of 1.596% reached in late March, just before President Trump's announcement on reciprocal tariffs.
• Results are due at 0435 BST / 1235 JT.

At the Tokyo lunch break, JGB futures are weaker, -17 compared to the settlement levels.

• Bank of Japan Governor Ueda, speaking in parliament, emphasised that trade uncertainties remain extremely high and are unlikely to ease even after tariff issues are resolved. He noted that the BoJ's baseline economic scenario could change significantly due to external conditions. Ueda reiterated there is no preset plan for interest rate hikes, which will only occur if economic and price conditions improve as expected. Despite this, the bias remains toward further rate increases. He also said the BoJ will review its bond tapering plans at the next policy meeting on June 17, taking into account feedback from bond market participants. Additionally, he pointed out that sharp movements in long-term yields could influence short-term rates.
• Note as well Governor Ueda will speak later today at 4:50pm local time.
• Cash US tsys are flat to 1bp cheaper, with a steepening bias, in today's Asia-Pac session after yesterday's sell-off.
• Cash JGBs are 1bp cheaper to 2bps richer across benchmarks, with a flattening bias. The benchmark 10-year yield is 0.9bps higher at 1.522% ahead of today's supply.
• Swap rates are flat to 1bp higher. Swap spreads are mixed.

The May meeting minutes confirmed that staying on hold, 25bp and 50bp rate cuts were discussed. It appears that not only is there considerable uncertainty regarding the outlook but that the Board prefers to remain cautious and move “predictably”, as a result it cut by the widely expected 25bp, which was also assumed in its updated staff projections. Given not just global uncertainties but also around the level of monetary restrictiveness and tightness in the labour market, another cut in July is not fixed and will be highly data and event dependent. 

• Rates were cut by 25bp as that was assumption in the forecasts brought underlying inflation close to the band mid-point, the “progress made on inflation”, the “slightly softer outlook for domestic consumption”, global developments would like slow Australian growth, it was “predictable” and would leave room to respond to events. 
• The Board decided to limit the move to 25bp because Australian data was yet to show any “adverse impact on domestic demand” from global events, concerns about Australia’s supply-side including productivity, “two-sided” uncertainty over the degree of labour market tightness, impact of a demand recovery on profit margins, trade policy outcomes and effects on global supply chains are still unknown, and it would be difficult to unwind “too rapid” easing.
• The arguments to hold policy included that the stance of current policy is not judged “very restrictive”, headline inflation would rise again when electricity rebates ended, “labour and product markets remained relatively tight”, case to wait and see how global trade policy evolved and there were currently “few observable effects on the Australian economy”.
• Domestic developments on their own warranted monetary policy easing, while global developments “strengthened the case”. The combination of the two is likely to be important for the rate outlook.