PREVIEW: 5-Year Supply Due

The Japanese MOF will today sell Y2.5tn of 5-Year JGBs re-opening JB#153. The MOF last sold 5-Year debt on Jul 12, the auction drew cover of 3.917x at an average yield of 0.039%, average price of 99.83, high yield of 0.039%, low price of 99.83, with 97.0236% of bids allotted at the high yield.

• Outright 5-Year JGBs sit towards the richer end of the range observed since late January, after the BoJ’s defence of its YCC parameters and wider recession related worry resulted in a retrace from cycle cheaps.
• The 2-/5-/10-Year butterfly operates around the middle of the recently observed range, with little appetite to lodge a fresh challenge of the BoJ’s YCC settings at present and the recent pain from the latest such challenge likely limiting demand for 5-/10-Year steepener positions.
• Overall, the auction will likely pass in a relatively smooth manner, although the lack of outright and relative-value appeal present headwinds and may limit broader demand.
• Results due at 0435BST/1235JST.