AUCTION PREVIEW: ACGB Apr '33 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.5bn of the 4.50% 21 April 2033 Bond, issue #TB140. The line was last sold on 8 February 2021 for A$500mn. The sale drew an average yield of 1.3503%, at a high yield of 1.3525% and was covered 4.8700x. There were 38 bidders, 10 of which were successful and 5 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 82.8%.

• The line hovers around the cheapest outright level witnessed in 2 or so months, while the large DV01 on offer may present a headwinds for takedown (although the fact that this is the sole round of ACGB issuance on offer this week may negate some of that).
• Steepness and cheapness vs. ACGB Nov '32 presents some relative value opportunities according to several desks, with the bond's entry into the XMH2 basket set to offer some flattening impulse as we move forwards. It would seem that the tender announcement surrounding today's auction also resulted in some limited relative cheapening, providing further enticement for those of this view.
• Still, the lack of inclusion in the RBA's ACGB purchase programme at present may limit the ability of the bond to flatten aggressively into the next futures roll, with current lower relative liquidity owing to the "limited" size of the line (expect the AOFM to get the bond up to size in the coming months ahead of the aforementioned basket inclusion, after a couple of smaller, infrequent tenders) also posing a potential headwind.
• Ultimately, the liquidity in the domestic banking system, international RV appeal and negative RBA-adjusted AOFM issuance dynamic are set to provide the footings for a smooth auction (as has been the case for some time now), but it will be the degrees that the previously outlined factors impact participants that shapes the overall strength of the auction.
• Results due at 0200BST/1100AEST.