PREVIEW: 5-Year JGB Supply Due

The Japanese MOF will today sell Y2.5tn of 5-Year JGBs opening JB#153. The MOF last sold 5-Year debt on June 21, the auction drew cover of 3.165x at an average yield of 0.083%, average price of 100.08, high yield of 0.089%, low price of 100.05, with 70.9981% of bids allotted at the high yield.

• Outright, 5-Year JGB yields sit comfortably away from the recent cycle cheaps, operating in positive territory (just).
• In terms of wider relative value, the 2-/5-/10-Year butterfly operates around the middle of its YtD range after a volatile few weeks. With the vol. stemming from the well-documented challenge of the BoJ’s YCC settings.
• Swap spreads are back from recent wides, which provides potential bidders with an easier to swallow hedging cost if they look to defend against rising yields.
• JGB futures basis conditions still haven’t fully normalised, which could present some hedging-related headwinds, potentially limiting broader takedown.
• Elsewhere, the BoJ’s continued defence of its current YCC settings, coupled with the wider risk-negative backdrop in play in the early rounds of this week’s trading, will promote an environment that should facilitate smooth enough digestion of supply.
• Results due at 0435BST/1235JST.