Smooth Digestion of 5-year Supply, Although Mildly Softer Demand

5-year supply sees smooth digestion as the low-price comes in line with dealer expectations (which stood at 99.90, per the BBG poll). The cover ratio at 3.703x ticked down versus 3.947x at last month’s auction.

• While there has been a recent richening in the outright and relative to the wings in a 2-/5-/10-year butterfly, this has not had a significant impact on demand, although the cover ratio did decline and the tail increased since last month's auction.
• Today’s result follows last week's mixed results for 10- and 30-year JGB supply. While the former performed relatively poorly, the latter showed the strongest cover ratio since January 2022.
• As flagged in the preview, the possibility of BoJ YCC tweaks in the coming months had some market participants expecting a shift of focus towards the 5-year sector.
• JGBs futures have gapped lower after the lunch break, adding to the slide seen in Tokyo morning trade.
• The 5-year JGB is unchanged post-auction, sitting in the middle of the morning’s range, after initially cheapening slightly.