JGBS AUCTION: 5-Year Supply Shows Mixed Metrics
Today’s 5-year JGB auction showed mixed signals on demand. The low price came in below expectations at 100.05, but other indicators were notably strong. The bid-to-cover ratio surged to 4.5783x—the highest since 2023—up from 3.1894x, while the tail narrowed slightly to 0.05 from 0.06, both pointing to improved bidding interest.
- The result aligns with the stronger demand seen at this month’s 10-year auction and suggests firmer investor appetite. With yields and the 2s/5s curve broadly unchanged from last month, today’s outcome represents a modest improvement in overall demand conditions.
- Notably, this was the first auction since the BoJ’s recent decision to slow the pace of quantitative tightening beyond the near term, which may have contributed to stronger buying interest.
- In the aftermath, the 5-year sector is little changed in afternoon trading.
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GOLD: Correction Continues As Risk Sentiment Improves
Gold prices are down 0.5% to $3212.15/oz so far today as better risk appetite weighs. They rose 0.8% to $3229.61 on Monday supported by safe-haven buying following Moody’s US sovereign downgrade. US Treasury yields are little changed in APAC trading, while the USD index is range trading and flat.
- Bullion reached $3232.72 earlier today but then trended down to $3204.71. It continues to trade between initial resistance at $3259.5, 20-day EMA, and initial support at $3121.0, 15 May low. It is almost 2% lower this month as more conciliatory trade developments have helped improve the global growth outlook, but with US tariffs only delayed and not scrapped uncertainty remains high.
- Asian equities are rallying with the Hang Seng up 1.4% but the S&P e-mini down 0.3%. Oil prices are little changed with WTI around $62.19/bbl. Copper is 0.4% lower and iron ore approaching $100/t. Silver is 0.5% lower at $32.19.
- Later the Fed’s Bostic, Barkin, Collins, Musalem, Kugler and Hammack appear and the Atlanta Fed’s conference continues. The ECB’s Lagarde and Cipollone attend the G7 meeting, while Buch, Cipollone and Donnery speak. In terms of data, US May Philly Fed non-manufacturing and Canadian April CPIs are released.
JGBS: Very Poor Demand Metrics For 20Y Auction, Tail Longest Since 1987
The 20-year JGB auction delivered very poor results across key metrics. The low price underperformed dealer forecasts, which were set at 99.80 according to a Bloomberg poll. Moreover, the cover ratio decreased to 2.5007x from 2.9639x in the previous auction, and the auction tail lengthened dramatically from 0.34 to 1.14 – the longest since 1987.
- As noted in the auction preview, today’s offering featured an outright yield near its cycle high, approximately 5bps above last month’s level.
- Moreover, the 10/20 yield curve remained near its recent high, its steepest since 1999.
- As a consequence, this result is likely to be seen as significantly worse than the performance observed in the 30-year JGB auction earlier this month.
- Post-auction, the 20-year JGB has cheapened 6bps.
JGBS AUCTION: 20-Year JGB Auction Results
The Japanese Ministry of Finance (MOF) sells Y750.9bn 20-Year JGBs:
- Average Yield: 2.453% (prev. 2.349%)
- Average Price: 99.29 (prev. 100.69)
- High Yield: 2.540% (prev. 2.374%)
- Low price: 98.15 (prev. 100.35)
- % Allotted At High Yield: 80.8791% (prev. 40.8163%)
- Bid/Cover: 2.5007x (prev. 2.9639x)
