PREVIEW: 5-Year JGB Supply Due

The Japanese MOF will today sell 2.5tn of 5-Year JGBs, opening JB#154. The MOF last sold 5-Year debt on September 13, the auction drew cover of 3.787x at an average yield of 0.040%, average price of 99.83, high yield of 0.042%, low price of 99.82, with 36.2922% of bids allotted at the high yield.

• 5-Year yields operate a handful of bp shy of cycle highs, although ongoing market vol. and the latest round of cheapening on the U.S. Tsy curve may dissuade some would-be bidders at today’s auction.
• The BoJ’s on hold stance, with maintained easing bias, is seen as a bit of a backstop for the auction.
• 5s trade towards the cheaper end of the YtD range on the 2-/5-/10-Year butterfly, which could generate some relative value interest. This could be further boosted by the allure of carry and roll on that particular structure.
• Ultimately, the net demand picture will be a trade-off between the seemingly attractive outright and relative value vs. worry surrounding ongoing market vol.
• Results due at 0435BST/1235JST.