10y JGB Auction Preview

Mizuho provides a preview of the upcoming JPY2.6 trillion 10y JGB auction, noting that while absolute yields (~2.7%) look cheap, event risk from the BOJ and geopolitics warrants a cautious relative value approach.

Key Takeaways

• 1.The 10y JGB yield (currently ~2.7%) is high relative to its recent history and May average of 2.540%, suggesting long-term pricing already incorporates hawkish BOJ expectations.
• 2.The 10y sector appears cheap on the curve, particularly against the 5y and 7y tenors, where yield spreads are above regression lines.
• 3.Major event risks persist, including potential US-Iran geopolitical developments and upcoming remarks from BOJ Governor Ueda regarding a June rate hike.

Table of Contents

• (1) Positives and negatives ahead of the 10y auction
• POTENTIAL POSITIVES
• POTENTIAL NEGATIVES
• (2) Auction strategy
• CONSIDER WEIGHTED 5S10S FLATTENERS
• (3) Key charts

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