PREVIEW - 2-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.9tn of 2-Year JGBs. The MOF last sold 2-year debt on 26 December 2023, the auction drew cover of 3.340x at an average yield of 0.064%, an average price of 100.071, a high yield of 0.074%, a low price of 100.050, with 69.2086% of bids allotted at the high yield.

• Last month's 2-year auction demonstrated mixed demand metrics, with the cover ratio increasing to 3.045x from 2.911x previously but the tail lengthening.
• Today’s auction comes with the outright yield slightly below the late-December level, with 2/5 and 2/10 curves 5-10bps steeper.
• It is also noteworthy that today's supply follows a 5-year offering earlier this month that showed lacklustre demand, which appeared to indicate that the yields in mid-January did adequately account for uncertainties surrounding the BoJ policy outcome. The poor digestion of January’s 5-year supply was reflected in the auction's low price which failed to meet dealer expectations and the cover ratio that declined relative to December’s auction.
• On the positive side, today's auction occurs amidst continuing bullish sentiment towards short-end global bonds, exemplified by the US tsy 2-year yield sitting some 90bps below its cycle peak set in late October.
• Against this backdrop, it will be intriguing to observe whether the current 2-year yield, will prove sufficient to generate demand in today's auction.
• Results are due at 0335 GMT / 1235 JST.