PREVIEW: Liquidity Enhancement Auction For OTR 5-15.5-Year JGBs

The Japanese Ministry of Finance (MOF) will today sell Y500bn of JGBs with 5-15.5 years until maturity in a liquidity enhancement auction. JB#1-29, #102-166 & #351-369 will be on offer.

• The previous liquidity enhancement auction covering these maturities was held on 19 May 2023. The auction was covered 3.716x at an average spread of +0.006%, and a high spread of +0.007% was registered, with 94.9811% of the bids allotted at the high spread.
• Last month’s offering saw lower demand, with the richening in the time between April and May auctions providing a less enticing level for outright longs or to cover existing shorts.
• While this event provides a liquidity accessing opportunity, and therefore will likely generate at least a baseline level of demand, the cheapening in the 7-15-year zone since the May 19 auction could see demand for paper in those areas of the curve rebound a little. The 5-year zone could however see demand wane a little given it has richened since the May 19 offering.
• With the outright yield levels across all lines still below those prevailing at the April 19 auction, demand is unlikely to approach those levels. The cover ratio in April hit the highest level seen since December’s 5-15.5 years liquidity enhancement offering.
• Results are due at 0435 BST/1235 JST.