PREVIEW - 5-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.5tn of 5-Year JGBs, re-opening JB#159. The MOF last sold 5-year debt on 15 August 2023, with the auction drawing cover of 3.346x at an average yield of 0.189%, an average price of 100.05, a high yield of 0.195%, a low price of 100.02, with 33.7977% of bids allotted at the high yield.

• The August 5-year auction faced a lacklustre reception, with the auction's pricing falling short of dealer expectations. The lack of demand was also reflected in a weakened cover ratio of 3.346x and a tail that grew longer, marking its longest since March. The August was the first 5-year supply since the BoJ's decision to tweak yield curve control (YCC).
• Today's auction also comes on the heels of generally poor digestion at September’s 10- and 30-year JGB supply. The 10-year auction saw a higher cover ratio than the August auction, but the low price failed to match predictions and the tail was the longest since April. In contrast, last week’s 30-year supply was poor across all metrics.
• Additionally, it follows yesterday’s heavy session sparked by remarks from BoJ Governor Ueda that it’s possible the central bank will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus.
• An announcement from the BoJ yesterday that it would conduct 5-year funds-supplying operations against pooled collateral on September 14 failed to materially arrest JGB selling.
• It is worth noting that the JGB market currently grapples with the highest outright 5-year yield levels seen since January, which could potentially support the reception of today's auction. However, recent JGB auction outcomes suggest that local investors are inclined towards seeking higher yields or prefer more time to assess the new YCC framework and the BoJ's policy outlook before significantly increasing their allocations to the JGB market.
• Results are due at 0435 BST/1235 JST.