AUCTION PREVIEW: ACGB Jun-30 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$600mn of the 1.50% 21 June 2031. The line was last sold on 27 May 2022 for A$800bn. The last sale drew an average yield of 3.2244%, at a high yield of 3.2275% and was covered 3.4250x. There were 38 bidders, 14 of which were successful and 8 were allocated in full.

• The AOFM also plans to sell A$700mn of the 2.75% 21 November 2029 bond on Friday. Accordingly, this week's ACGB supply, like last week’s, is higher than the A$800mn run rate consistent with the 2023-24 borrowing requirement outlined in the AOFM’s January’24 Issuance Program Update.
• Given the considerable time elapsed since the last issuance of the Jun-31 bond line, any reference to the previous auction result and outright yield level would lack relevance. Nevertheless, it's noteworthy that the current outright yield is approximately 60bps lower than the peak observed in early November but 40bps higher than the lowest level seen this year.
• Several factors could negatively influence the bidding at today’s auction. First, the 3/10 yield curve is at its flattest since September last year. Secondly, the line is not included in the XM basket and sits in a less preferred area of the curve.
• Thirdly, the auction occurs ahead of today’s release of CPI monthly data for April. After the RBA revised up its 2024 headline and trimmed mean CPI forecasts, there is likely to be even more scrutiny of inflation data. Bloomberg consensus expects it to ease 0.1pp to 3.4% but it is worth noting that the first month of the quarter does not include updated services components, the sector the RBA is principally concerned about.
• It is also important to acknowledge that the sentiment towards longer-dated global bonds has deteriorated dramatically over recent months.
• Results are due at 0200 BST / 1100AEST.