AUCTION PREVIEW: ACGB Apr-24 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.5bn of the 2.75% 21 April 2024 Bond, issue #TB137. The line was last sold on 22 June 2020 for A$2.0bn. The sale drew an average yield of 0.3003%, at a high yield of 0.3025% and was covered 4.4715x. There were 49 bidders, 19 of which were successful and 8 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 20.4%.

• This is the first tap of the line since Jun ’20. It comes after the RBA enacted and subsequently dropped its YCT mechanism, with the line of course providing the target point of that mechanism. That means that the previous auction details do not really provide much in the way of comparable use.
• Borrowing in this area of the curve via the RBA’s SLF facility points to the potential for demand, with just over A$700mn of the line currently leant out by the central bank. The borrowing from the SLF points to the potential for a bit of a collateral shortage in the wake of the RBA’s YCT scheme, with the AOFM no doubt trying to provide an extra bit of market liquidity via this auction.
• The well-documented level of liquidity in the domestic banking system, international relative value appeal and negative RBA purchase-adjusted net supply backdrop should facilitate some background demand, and therefore smooth digestion of the auction.
• That being said, we note that the underlying demand witnessed at recent AOFM auctions has softened, albeit with no visible impact on markets in the wake of supply.
• The line does not fall into the YM basket anymore, and slightly longer bonds provide a more attractive yield level.
• On net it may be that the aforementioned collateral shortage/short covering requirements support demand at the auction, with a potential lack of strong interest from elsewhere.
• Results due at 0000GMT/1100AEDT.