Smooth Digestion of 5-year Supply

The supply of 5-year bonds was well-received, with the auction proceeding smoothly. The auction price aligned with dealer expectations, which were at 100.14 according to the BBG poll. The cover ratio improved to 3.850x compared to 3.703x in the previous month's auction. Additionally, the tail decreased slightly.

• While there has been a recent richening in the 5s outright and relative to the wings in a 2-/5-/10-year butterfly, this has not had a significant impact on demand.
• As flagged in the preview, the receding possibility of BoJ policy adjustments in the upcoming months could offer some form of offset to these demand headwinds.
• Today’s auction also follows solid absorption of 10- and 30-year JGB supply in early June.
• At the start of the afternoon trading session, JGB futures saw a gap up, but they have since retreated to levels seen at the lunch break.
• The 5-year JGB remains unchanged after the auction, hovering near the lower end of the morning's range at 0.072%, a decrease of 0.3bp for the day.