PREVIEW: 5-Year JGB Supply Due

The Japanese MOF will today sell 2.5tn of 5-Year JGBs, opening JB#156. The MOF last sold 5-Year debt on 13 January 2023, the auction drew cover of 3.661x at an average yield of 0.393%, average price of 99.55, high yield of 0.399%, low price of 99.52, with 81.0659% of bids allotted at the high yield.

• Note that this opening of a new 5-Year line comes after the opening of a different 5-Year bond last month, owing to a reduction in the coupon size (down to 0.2% from the 0.3% seen on JB#155).
• The lower coupon on offer and uncertainty surrounding the future of the BoJ’s YCC mechanism are headwinds ahead of the auction, although the recent stabilisation away from cycle cheaps and continued speculation that the BoJ could shorten the focus of its YCC mechanism to 5-Year paper should provide some support.
• Note that 5s have cheapened away from multi-month richest levels of the cycle on the 2-/5-/10-Year butterfly, although that structure is of course skewed by the BoJ’s YCC settings.
• 5s present the most attractive carry & roll proposition on the curve at present.
• Results due at 0335GMT/1235JST.