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Very Strong Demand Seen At 5-year Auction

JGBS

The supply of 5-year bonds was very well-received today. The auction's low price beat dealer expectations, which were at 99.8 according to the BBG poll. The cover ratio improved dramatically to 4.680x compared to 3.850x in the previous month's auction. Additionally, the tail decreased to its shortest since February.

  • As flagged in the preview, the current outright 5-year yield, aligning with the level observed during the May offering, coupled with diminishing expectations of policy adjustments by the BoJ in the coming months, appears to have assisted the takedown at today's auction compared to the previous month.
  • The richening of the belly in the 2/5/10-year butterfly since the June auction does not appear to have had a significant impact on demand.
  • Today's auction comes on the heels of mixed outcomes for 10- and 30-year JGB supply last week, with the former showing solid demand and the latter encountering challenges.
  • At the start of the afternoon trading session, JGB futures saw a gap up, but they have since retreated a little. Nonetheless, they remain higher than levels seen at the lunch break.
  • The 5-year JGB is around 2.0bp richer at 0.103% after the auction to be 1.8bp lower on the day.
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