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 30 January 2024, the auction drew cover of 3.742x at an average yield of 0.075%, an average price of 100.049, a high yield of 0.082%, a low price of 100.035, with 57.0165% of bids allotted at the high yield.

• Last month's 2-year auction demonstrated mixed demand metrics. On the strong side, the cover ratio increased to 3.742x from 3.045x prior and the tail shortened. However, the low price failed to meet dealer expectations.
• Today's auction reveals an outright yield that narrowly misses its cyclical peak, the highest level since 2011.
• Also on the positive side, the yield curve is flatter than the January outing, with both the 2/5 and 2/10 curves showing declines of 5 and 10bps respectively.
• On the negative side, however, today's auction occurs amidst growing speculation the Bank of Japan will deliver its first interest-rate increase since 2007 as early as next month.
• It is also noteworthy that today's supply follows a 5-year offering earlier this month that showed mixed demand metrics. The poor digestion of February’s 5-year supply was reflected in the cover ratio, which declined for the second consecutive month. This appeared to indicate that the yields in mid-February did not adequately account for uncertainties surrounding the BoJ policy outcome.
• 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.