AUCTION PREVIEW: ACGB Dec-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$600mn of the 3.50% 21 December 2034 bond, issue #TB168. The line was last sold on 17 January 2024 for A$800bn. The last sale drew an average yield of 4.2311%, at a high yield of 4.2325% and was covered 3.1763x. There were 47 bidders, 17 of which were successful and 9 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 88.2%.

• This week's ACGB supply falls at the upper end of the recent weekly issuance range, after Monday's sale of A$900mn of the 3.25% 21 April 2029 bond. Based on Budget forecasts, issuance of Treasury Bonds (including Green Treasury Bonds) in 2024-25 is expected to be around $90 billion. In 2023-24, issuance of Treasury Bonds will be around $50 billion.
• 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 0.81bp through prevailing mids. However, the cover ratio was lower at 3.1763x versus 3.3750x at the 22 November auction.
• Today's auction bidding will likely be influenced by several factors. The current outright yield is similar to the January 17 auction, approximately 75bps lower than the November peak.
• Conversely, the 3/10 yield curve is 15bps flatter than during January's auction, marking its flattest level since September last year.
• The recent heaviness of ACGBs, following the RBA's hawkish stance at the June Monetary Policy Meeting, where a rate hike was considered but not a cut, may also impact bidding.
• On the positive side, the inclusion of this line in the XM basket and the recent improvement in sentiment towards global bonds are noteworthy.
• While some factors may limit the overall strength of bidding, there is an expectation of continued firm pricing at today's auction.
• Results are due at 0200 BST / 1100AEST.