PREVIEW - 2-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.9tn of 2-Year JGBs, re-opening JB#448. The MOF last sold 2-year debt on 26 April 2023, the auction drew cover of 3.705x at an average yield of -0.042%, an average price of 100.095, a high yield of -0.037%, a low price of 100.085, with 74.5093% of bids allotted at the high yield.

• The 26 April auction, which was conducted days ahead of the BoJ monetary policy meeting, showed tepid demand with uncertainty regarding the trajectory of BoJ policy as the likely catalyst. The cover ratio slipped to the lowest level since August’s auction, although the low price matched wider expectations and the tail remained contained.
• Today's auction may see a stronger bid after the BoJ left its major monetary levers unchanged at its April meeting, Governor Ueda’s first meeting atop the central bank.
• Nonetheless, with growing inflationary pressure in Japan suggesting a near-term tweak to YCC is still on the table over the coming months, demand is likely capped.
• Another factor that could potentially impact demand at this week's auction is the deeper negative territory of the outright 2-year yield compared to the previous month's auction. However, it is important to note that the current yield level remains above the trough observed in March, which may mitigate some concerns.
• In addition, it is important to highlight that the 2/5 curve is presently displaying a flatter shape in comparison to the curve witnessed at the previous month's auction. Nevertheless, it remains within the range observed throughout the year thus far.
• Results are due at 0435 BST/1235 JST.