AUCTION PREVIEW: ACGB Apr-33 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 4.50% 21 April 2033 Bond, issue #TB140. The line was last sold on 16 Feb 2022 for A$1.0bn. The sale drew an average yield of 2.2592%, at a high yield of 2.2600% and was covered 3.1090x. There were 45 bidders, 18 of which were successful and 9 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 95.5%.

• Firstly, we note that the line has not been tendered since February, when the market was operating under a different regime, so any observations re: today’s auction results vs. the previous offering will offer little in the way of meaningful insight.
• Note that the recent move away from cycle cheeps should support takedown when it comes to today’s auction, although continued conservatism when it comes to the international investor sphere deploying capital in ACGBS, coupled with ongoing market vol., will likely cap the cover ratio.
• The DV01 on offer (A$756K) shouldn’t be prohibitive.
• The hedgability of the line (it is a basket bond for the current XM futures) will also promote takedown, although there isn’t much in the way of overt wider relative value appeal evident at present, given the recent flattening of the curve, current 5-/10-/15-Year butterfly levels and 10-Year swap spread optics.
• Digging into the micro curve unearths some more attractive options, although the cheapness vs. some of the slightly shorter dated lines is likely linked to the limited amount of the bond on issue (A$19.8bn)
• Al in, we suggest that pricing should be smooth enough, printing comfortably through mids.
• Results due at 0200BST/1100AEST.