PREVIEW - 5-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.5tn of 5-Year JGBs, re-opening JB#163. The MOF last sold 5-year debt on 14 November 2023, with the auction drawing cover of 4.056x at an average yield of 0.330%, an average price of 99.85, a high yield of 0.334%, a low price of 99.83, with 84.0897% of bids allotted at the high yield.

• The 5-year auction held on November 14 witnessed satisfactory demand, meeting dealer expectations despite a slightly lower cover ratio of 4.056x compared to October's 4.415x. It's noteworthy that November's cover ratio ranked as the third highest for a 5-year auction in the past 12 months. The tail remained consistent with October’s, positioning itself within the middle of the range observed over the past year.
• However, today's auction comes on the heels of suboptimal results at December’s 10- and 30-year JGB supply and November’s 2-year auction. It's worth noting that the cover ratio was the lowest for a 2-year auction since 2009.
• The current 5-year auction is taking place with an outright yield slightly higher than the early November offering and 15bp higher than last week’s low. This adjustment follows the trend set by the 30-year JGB auction, which displayed unfavourable demand metrics.
• Although the 2/5 curve mirrors the outright yield's trajectory, it remains flatter than at the November auction.
• On the positive side, the current auction takes place against a backdrop of persistently bullish sentiment toward global bonds, as exemplified by the US Treasury 10-year yield remaining 75-80 basis points below its cycle peak set in late October.
• In light of these circumstances, it will be intriguing to observe whether today’s supply will deviate from the recent trend of lacklustre demand metrics seen in JGB auctions.
• Results are due at 0335 BST / 1235 JST.