AUCTION PREVIEW: ACGB Dec-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$700mn of the 3.50% 21 December 2034 bond, issue #TB168. The line was last sold on 17 July 2023 for A$800bn. The last sale drew an average yield of 3.9426%, at a high yield of 3.945% and was covered 3.5187x. There were 51 bidders, 19 of which were successful and 11 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 19.3%.

• The previous round of ACGB Dec-34 supply saw the recent run of strong pricing at ACGB auctions continue with the weighted average yield printing 0.84bp through prevailing mids despite a larger issue size (A$800mn versus A$700mn prior). The cover ratio did however move slightly lower to 3.5187x from 3.8186x at the June auction. The large number of overall and successful bidders highlighted the strength of the demand.
• The bidding at today’s auction is likely to be influenced by several factors, including a more sanguine view towards the RBA's policy outlook, a higher outright yield, a steeper yield curve and the line’s inclusion in the XM basket.
• Additionally, the size of this week's ACGB supply shifts back to A$700mn, consistent with the positive fiscal backdrop highlighted in the June 2023 Issuance Program Update.
• However, it is important to acknowledge that sentiment towards longer-dated global bonds has turned pessimistic over the past month or so.
• That and the potential need to increase the line "up to size" could dampen demand.
• While there are factors that may constrain the overall strength of bidding, there is an expectation for continued firm pricing at today’s auction.
• Results are due at 0200 BST/1100 AEST.