PREVIEW: No Major Headwinds For 5-Year Supply

The Japanese MOF will today sell Y2.5tn of 5-Year JGB's re-opening JB#144. The MOF last sold 5-Year debt on August 20, the auction drew cover of 3.553x at an average yield of -0.093%, average price of 100.94, high yield of -0.091%, low price of 100.93, with 99.4049% of bids allotted at the high yield.

• Outright yields have retraced from recent cheaps, to last hover around yield levels that prevailed at last month's auction.
• Little in terms of outright relative value evident on the curve, with the 2-/5-/10-Year fly hovering around the middle of the range witnessed since the March vol., with both legs of the fly also sitting mid-range.
• The emergence of Chief Cabinet secretary Suga as the frontrunner to succeed the outgoing Japanese Prime Minister Abe promotes fiscal and monetary continuity, and therefore doesn't pose any headwinds to auctions, at least for the foreseeable future.
• In terms of market structure, several desks indicate that a decent short base has likely been built in the sector, which should support demand. The BoJ's active Rinban operations in this area of the curve should also support demand.
• Asset swaps hover around recent highs, but still sit well shy of the March vol. peak.
• Results due at 0435BST/1235JST.