JGBi Auction Preview

Mizuho previews the upcoming JPY 250bn JGBi auction, noting that while breakeven inflation rates have broken out recently due to yen weakness, upcoming negative CPI carry and slowing food prices suggest limited short-term upside.

Key Takeaways

• 1.10-year breakeven inflation rates (BEI) have recently broken out above 1.75%, largely driven by yen weakness and BOJ rate hike expectations.
• 2.Upcoming CPI carry is expected to be negative (~-0.30 yen), and slowing food inflation poses a headwind for further BEI expansion.
• 3.The JBI30 bond appears 'rich' (expensive) relative to the JBI29 bond, with a spread of +10bp vs a calculated fair value of +2.7bp.

Table of Contents

• BREAKEVENS BREAKING OUT
• CPI CARRY SET TO BE NEGATIVE FOR THE TIME BEING
• JBI29-JBI30 BEI SPREAD A LITTLE WIDER THAN "FAIR"
• SUMMARY AND INVESTMENT STRATEGY

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