PREVIEW - 5-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.5tn of 5-Year JGBs, re-opening JB#161. The MOF last sold 5-year debt on 12 September 2023, with the auction drawing cover of 4.415x at an average yield of 0.291%, an average price of 100.04, a high yield of 0.295%, a low price of 100.02, with 81.7630% of bids allotted at the high yield.

• The September 5-year auction saw stronger demand, with the auction's low price beating dealer expectations. This stronger demand was also reflected in the cover ratio of 4.415x, a notable increase from the 3.346x recorded at the previous month's auction. Adding further to the solid metrics, the tail shortened.
• However, today's auction comes on the heels of mixed to poor digestion at October’s 10- and 30-year JGB supply. The low-price beat predictions and the tail shortened at the latest 10-year auction, but the cover ratio down ticked. In contrast, last week’s 30-year supply was poor across all metrics. Notably, the tail was the longest since June 2019.
• It is worth noting that the 5-year JGB yield has recoiled from the highest outright level this year over the past few days. Nevertheless, an outright yield that is still higher than that seen at the September auction should support the reception of today's auction.
• That said, recent JGB auction outcomes suggest that local investors may be inclined towards seeking higher yields or prefer more time to assess the BoJ's policy outlook before significantly increasing their allocations to the JGB market.
• Results are due at 0435 BST/1235 JST.