Stronger Demand Seen At 5-Year Auction

Today's supply of 5-year bonds sees stronger demand, with the auction's low price beating dealer expectations, which had been projected at 100.00 as per the BBG poll. This stronger demand was also reflected in the cover ratio of 4.415x, a notable increase from the 3.346x recorded in the previous month's auction. Adding further to the solid metrics, the tail shortened.

• As highlighted in our preview, the highest outright 5-year yield level since January had the potential to support the reception of today’s auction.
• Today’s result contrasts with 10-year and 30-year supply that saw poor digestion, suggesting investors were inclined to seek higher yields before significantly increasing allocations to those parts of the JGB curve.
• The richening of the belly in the 2/5/10-year butterfly since the previous auction also possibly assisted the auction takedown today.
• At the start of the afternoon trading session, JGB futures have gapped up from lunch break levels.
• The 5-year JGB is around 1.0bp richer at 0.282% after the auction to be 0.4bp lower on the day.