AUCTION PREVIEW: ACGB Dec-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 3.50% 21 December 2034 bond. The line was opened on 19 April 2023 for A$14bn via syndication at a yield to maturity of 3.635%. The issue size was the same as the syndication of the then-new May-34 bond on November 8. A$61bn in bids received at the final clearing price pointed to more than ample demand. The AOFM will be mindful of the performance of the bond when considering the timing of future issuance.

• This week's ACGB supply continues the recent run of relatively low issuance, consistent with the more favourable fiscal backdrop outlined in the Federal Budget. In 2022-23, Treasury Bonds issuance is expected to be around A$80 billion, down from the A$95 billion announced in October.
• Although the current outright yield level of the line is comfortably higher than its opening on 19 April (3.7334% versus 3.635%), it is not included in the XM basket, placing it in the less preferred segment of the yield curve. Furthermore, its richness on the interpolated curve and the potential need to increase the line "up to size" may dampen demand.
• The flatness of the 3/10 yield curve could also present a challenge to demand given it is back approaching cycle lows.
• The flatness of the 3/10 yield curve could also present a challenge to demand given it is back approaching cycle lows.
• While there is an expectation for continued firm pricing at auctions, the factors mentioned above could constrain the overall strength of bidding.
• Results are due at 0200BST/1100AEST.