PREVIEW - 2-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.9tn of 2-Year JGBs, re-opening JB#454. The MOF last sold 2-year debt on 30 October 2023, the auction drew cover of 3.045x at an average yield of 0.106%, an average price of 99.987, a high yield of 0.115%, a low price of 99.970, with 90.6829% of bids allotted at the high yield.

• Last month's 2-year auction demonstrated weak demand, as the low price failed to meet dealer expectations, the cover ratio declined to 3.045x from 3.273x previously and the tail lengthened.
• However, today's auction occurs amidst newfound bullish sentiment towards short-end global bonds, exemplified by the US tsy 2-year yield sitting some 50bps below its cycle peak set in late October.
• Furthermore, today's auction follows a smoothly absorbed 5-year offering earlier this month, indicating that the yields in mid-November adequately accounted for uncertainties surrounding both the BOJ and broader bond market conditions. It is crucial to recognise, however, that current outright yields are considerably lower than the levels observed in mid-November across the yield curve.
• It is also worth noting the significant flattening of the 2/5 JGB yield curve over the past month.
• Against this backdrop, it will be intriguing to observe whether the relatively lower 2-year yield, will prove sufficient to generate demand in today's auction.
• Results are due at 0335 GMT / 1235 JST.