5-Year Supply Poor Digestion

Today's supply of 5-year bonds shows poor digestion. The auction's low price failed to meet dealer expectations, which had been projected at 100.00 as per the BBG poll, and the cover ratio of 3.788x was lower than the 3.851x recorded at December’s auction.

• The tail held at last month’s length, which sits in the middle of the range for the past year.
• As indicated in our preview, the current 5-year auction was occurring with an outright yield at its lowest level since late July and with a 2/5 curve around 10bps flatter than at the December auction.
• Today’s result is consistent with the suboptimal results seen at January’s 10- and 30-year JGB supply.
• The 5-year JGB is around 1.0bp cheaper at 0.178% after the auction. JGB futures have gapped lower in early afternoon dealings to a session low of -31 compared to settlement levels.