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, issue #TB168. The line was last sold on 14 August 2024 for A$800bn. The last sale drew an average yield of 3.9818%, at a high yield of 3.9850% and was covered 2.7375x. There were 39 bidders, 21 of which were successful and 14 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 40.4%.

• This week's ACGB supply is at the recent average weekly issuance, with A$700mn of the 2.75% 21 November 2029 bond due to be issued on Friday.
• According to the June 2024 Issuance Program Update, the AOFM plans to: conduct 2 Treasury Bond tenders most weeks; and hold 1-2 Treasury-indexed bond tenders each month. Issuance of Treasury Bonds in 2024-25 is expected to be around $90 billion. Around $2 billion will consist of Green Treasury Bond tenders.
• 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 through prevailing mids. However, the lower outright yield did appear to hamper the overall strength of bidding, with a large decrease in the cover ratio to 2.7375x from 4.2250x at the June auction.
• Several factors will likely influence today's auction bidding. The current outright yield is around 7bps lower than the mid-August auction and approximately 100bps lower than the November peak.
• Conversely, the 3/10 yield curve is 3bps steeper than during mid-August’s auction, and currently sitting near the mid-point of the range it has traded in over the past year.
• On the positive side, the line is included in the XM basket and there has been a notable improvement in sentiment towards global bonds recently. This is exemplified by the US tsy 10-year yield, which recently hit its lowest level this year, some 90bps below its April peak.
• 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.