PREVIEW: 5-Year JGB Auction

The Japanese Ministry of Finance (MoF) will today sell Y2.5tn of 5-Year JGBs. The MoF last sold 5-year debt on 16 January 2024, with the auction drawing cover of 3.788x at an average yield of 0.197%, an average price of 100.01, a high yield of 0.204%, a low price of 99.98, with 22.1710% of bids allotted at the high yield.

• The January 5-year auction struggled to attract strong interest, with its low price falling short of dealer expectations. Notably, the cover ratio of 3.788x marked a decrease from December's 3.851x figure. The tail length remained consistent with December's auction, sitting within the mid-range observed over the past year.
• However, today's auction comes on the heels of solid results at February’s 10- and 30-year JGB supply.
• The current 5-year auction is taking place with an outright yield that is 10-15bps higher than January’s offering. It is however worth noting that January’s level was at its lowest level since late July. The 2/5 curve is also around 5bps steeper than at the January auction.
• Today's auction occurs amidst a more optimistic outlook regarding the BoJ’s policy stance. BoJ Deputy Governor Shinichi Uchida remarked yesterday that the likelihood of the bank swiftly and continuously raising its policy rate post-negative interest rates is low. Uchida emphasised that financial conditions will remain supportive, as articulated in his address to local business leaders in Nara.
• Given these developments, it will be interesting to observe whether today's auction will maintain the recent trend of improved demand metrics witnessed in JGB auctions.
• Results are due at 0335 GMT / 1235 JST.