AUCTION: PREVIEW: 5-Year JGB Supply Due

The Japanese MOF will today sell 2.5tn of 5-Year JGBs, opening JB#155. The MOF last sold 5-Year debt on 8 December, the auction drew cover of 3.579x at an average yield of 0.121%, average price of 99.90, high yield of 0.125%, low price of 99.88, with 18.5385% of bids allotted at the high yield.

• The current volatility surrounding JGBs makes for a rocky supply setting, even with outright yields operating at fresh cycle highs. Current 5s print a little over 20bp above levels that prevailed at the previous 5-Year auction.
• This backdrop will probably prevent the auction from being as well received as it otherwise could be.
• 5s have cheapened on the 2-/5-/7-Year butterfly in recent days, which could provide some light demand, although continued speculation surrounding the immediate future of the BoJ’s policy settings will likely nullify most, if not all, of the impact of that relative cheapening (which in itself is a function of the BoJ-related speculation).
• Risks seem to be tilted towards a weak auction.
• Results due at 0335GMT/1235JST.