CHINA: Bond Futures Break Six Day Decline

Today’s 5-year JGB auction delivered lacklustre demand signals. The low price was slightly below expectations at 99.81, the bid-to-cover ratio fell to 3.1676x from 3.3258x, and the tail widened to 0.04 from 0.03.

• The result contrasts with the strong results seen at this month’s 10-year and 30-year auctions, but is consistent with last month’s poor 2-year auction.
• Ahead of that 2-year auction, Reuters reported that the Japanese government will increase issuance of 2-year and 5-year JGBs from January as part of its stimulus-funding plan. Issuance is expected to rise by around 100bn each for the 2-year and 5-year tenors. Reuters also noted that there are no changes to the planned issuance for 10-40-year tenors.
• Overall, with an outright yield and the 2s/5s curve near cycle highs, today’s outcome points to generally poor demand conditions.
• In the aftermath, the 5-year sector is slightly cheaper in afternoon trading.

The Japanese Ministry Of Finance (MoF) sells Y1,853.5bn 5-Year JGBs:

• Average Yield (%): 1.435 (prev. 1.245)
• Average Price: 99.84 (prev. 100.25)
• High Yield (%): 1.444 (prev. 1.251)
• Low price: 99.80 (prev. 100.22)
• % Allotted At High Yield (%): 37.7565 (prev. 31.6009)
• Bid/Cover: 3.1676x (prev. 3.3258x)

The RBA left rates at 3.6% at its December decision but noted that risks to inflation are tilted to the upside. The labour market remains “a little tight” and private domestic economic momentum is stronger. Statement can be found here. Press conference at 1530 AEDT. More details to follow.