Cheaper After Poor 5Y Auction But Sell-Off Moderate

JGB futures are cheaper and just off the session’s worst level, -28 compared to settlement levels. JBH4 gapped lower in early afternoon dealings after the results of today’s JGB auction showed poor absorption again. The 5-year auction's low price failed to meet dealer expectations and the cover ratio of 3.788x was lower than the 3.851x recorded at December’s auction. Today's auction comes on the heels of suboptimal results at January’s 10- and 30-year JGB supply.

• There hasn’t been much in the way of domestic data drivers to flag, outside of the previously outlined December PPI print that surprised on the high side of expectations.
• JGBs have also likely been pressured by cash US tsys in today’s Asia-Pac session after the observance of the Martin Luther King public holiday yesterday. Benchmark yields are 5-6bps higher. Later today the US calendar sees Empire Manufacturing for January. Fed's Waller also speaks on Economic Outlook and Monetary Policy.
• Cash JGBs are cheaper across the curve, with the 20-year underperforming (+1.0bp). The benchmark 10-year yield is 0.8bp higher at 0.579% versus yesterday’s low of 0.556%.
• The 5-year yield is 0.4bp higher at 0.173% in post-auction trade versus yesterday’s low of 0.163%.
• Swaps curve has bear-steepened, with rates 1-2bps higher. Swap spreads are wider.
• Tomorrow, the local calendar is empty.