The 5-Year sector seems to be in demand in....>

JAPAN: The 5-Year sector seems to be in demand in Japan, as was evidenced by the

dual tranche JPY denominated debt from Daiwa yesterday. Daiwa sold total Y40bln

bonds comprising of Y25bln 5-Year and Y15bln 10-Yr. Daiwa increased the size of

both issues from the initial guidance, but the 5-Yr was subject to a Y15bln

increase & the 10-Year +Y5bln. The line was oversubscribed ~2.48x according to

MNI sources, better than the Nomura 5-Yr (also 0.22% coupon but a spread ~26bp)

on Aug 4 despite Nomura rated one notch higher at A+ by JCR. Mitsubishi Heavy

also plan a sale of Y10bln in the sector with a +19bp spread.

- The 5-Yr JGB maturity has seen heavy buying, dropping yields further than its

peers, -5.15bp in the past 6-weeks. Only the 20-Yr sector has seen a bigger drop

(due to positive carry and roll). This widened the spread on the Daiwa

securities to around +31bp in the 5-Year with the 0.22% coupon.

- The BoJ recently increased the size of 5-10 Yr purchases (since dropped back

to below pre-change levels) in a sector where the bank already own 55% of

outstanding JGB's, the outstanding value of 5-10 Yr debt has dropped from a high

of Y216bln in May to Y214bln in July.