AUCTION PREVIEW: ACGB Apr-33 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 4.50% 21 April 2033 Bond, issue #TB140. The line was last sold on 1 December 2021 for A$1.0bn. The sale drew an average yield of 1.7480%, at a high yield of 1.7500% and was covered 2.7550x. There were 38 bidders, 20 of which were successful and 10 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 59.2%.

• The recent cheapening and ample liquidity in the domestic system will likely promote the smooth takedown of supply today, even with outright RBA bond purchases a thing of the past (May decision re: the reinvestment of cash flows from maturing bonds held under QE pending) and plenty or questions remaining re: the speed and duration of the impending Fed & RBA hiking cycles.
• The line does form part of the underlying basket for XMH2 futures, which makes it more hedgible, another plus for takedown (even though it is ~1-Year longer than a true 10-Year bond, in maturity terms).
• 10s have moved away from the recent (late ’21) richest levels observed on the 5-/10-/15-Year butterfly, but current levels on that structure aren’t seen as particularly attractive when it comes to establishing longs (flatness vs. the short-end/belly is a function of RBA hike pricing, and an impediment to relative value demand here).
• Ultimately, we expect pricing to be solid/strong, although the headwinds listed above may mean that the cover ratio isn’t as strong as it could be.
• Results due at 0000GMT/1100AEDT.