A planned 20-year JGB auction later in the day--the first tender after the announcement of a planned December 16 national election--may offer more hints on how investors think a change of power could affect bonds. Many expect the main opposition LDP will win the poll and name LDP president Abe, a champion of reflation policy, as prime minister. 20-year JGBs appear "cheap" compared with other debt with different maturities, but it's doubtful that investors will find them as attractive as before "at a time when some speculation for potential gains in yields is emerging," says Deutsche Securities chief bond strategist Makoto Yamashita. Meanwhile, Barclays Securities strategist Noriatsu Tanji says 20-year yields have "room to flatten further," given their still-tight supply, but notes "there is a risk of steepening linked to political factors." Japan's MOF will sell Y1.2 trillion with a 1.7% coupon. 20-year yields stand at 1.685%.
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