PREVIEW - 5-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.5tn of 5-Year JGBs, re-opening JB#158. The MOF last sold 5-year debt on 22 June 2023, the auction drew cover of 3.850x at an average yield of 0.068%, an average price of 100.15, a high yield of 0.070%, a low price of 100.14, with 54.9513% of bids allotted at the high yield.

• The 5-year JGB auction today comes after the June BoJ policy meeting largely unfolded as expected, with no major changes to the key policy parameters or the policy outlook.
• Today's auction comes on the heels of mixed outcomes for 10- and 30-year JGB supply last week. The 10-year auction yielded positive results as the low price outperformed predictions, and both the cover ratio and tail achieved their best outcomes in the past four months. In contrast, the 30-year supply encountered challenges, experiencing relatively weaker demand. The low price failed to meet dealer expectations. Additionally, the cover ratio dropped to a four-month low, and the tail lengthened to its longest level since April 2020.
• The current outright 5-year yield, aligning with the level observed during the May offering, coupled with diminishing expectations of policy adjustments by the BoJ in the coming months, could potentially lead to a stronger takedown during today's auction compared to the previous month.
• However, it is worth noting that a slight richening of the belly in the 2/5/10-year butterfly since the June auction may impact investor interest. The 5s currently sit just above the cycle's richest levels.
• Results are due at 0435 BST/1235 JST.