PREVIEW - 5-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.5tn of 5-Year JGBs, re-opening JB#156. The MOF last sold 5-year debt on 11 April 2023, the auction drew cover of 3.947x at an average yield of 0.157%, an average price of 100.21, a high yield of 0.159%, a low price of 100.20, with 11.0649% of bids allotted at the high yield.

• The 5-year JGB auction taking place today follows last week's mixed results for 10- and 30-year JGB supply. While the former performed relatively poorly, the latter showed the strongest cover ratio since January 2022.
• The outright 5-year yield level may present a hurdle since it is lower than those seen at last month's auction, which had solid demand, and in line with levels seen at the March auction, which had tepid demand.
• Adding to this, the 2-/5-/10-year butterfly's belly currently sits just above the cycle's richest levels. In contrast, the 5s were at fresh cycle cheaps ahead of the 5-year supply in March.
• These factors may limit bids, although the possibility of BoJ YCC tweaks in the coming months could offset this with some market participants having suggested that such a move could lead to a shift of focus towards the 5-year sector.
• Results are due at 0435 BST/1235 JST.