PREVIEW: 5-Year JGB Auction

The Japanese Ministry of Finance (MoF) will today sell Y2.3tn of 5-Year JGBs. The MoF last sold 5-year debt on 12 March 2024, with the auction drawing cover of 3.991x at an average yield of 0.372%, an average price of 100.13, a high yield of 0.376%, a low price of 100.11, with 60.1203% of bids allotted at the high yield.

• The March 5-year auction showed solid results, with the cover ratio increasing to 3.991x from 3.44x at February’s auction. This was the first monthly gain in cover over the past three. The auction tail narrowed slightly as well.
• Today's auction also comes on the heels of a strong 10-year JGB auction in April. The low price beat wider expectations, the tail shortened, and the cover ratio increased versus March’s auction.
• Crucially, that 10-year offering marked the inaugural auction for the new fiscal year and represented the first unveiling of the 10-year supply since the BoJ removed its negative interest rate policy (NIRP).
• Accordingly, that outcome established an optimistic tone for a market that has experienced mounting pressure since mid-December, fueled by expectations of policy tightening from the BoJ.
• The current 5-year auction is taking place with an outright yield that is slightly higher than March’s offering but still around 10bps lower than the cyclical peak set in early November. The 2/5 curve is slightly flatter than in early March.
• 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 0435 BST / 1235 JST.