AUCTION PREVIEW: ACGB Jun '31 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 1.50% 21 June 2031 Bond, issue #TB157. The line was last sold on 5 March 2021 for A$1.0bn. The sale drew an average yield of 1.8378%, at a high yield of 1.8425% and was covered 3.3850x. There were 54 bidders, 25 of which were successful and 18 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 8.8%.

• The recent adjustment to the RBA's charges for shorting the bonds covered by its 3-Year yield targeting scheme, the RBA-adjusted net supply backdrop evident over the past couple of weeks and RBA Governor Lowe's dovish reiterations/pushback against market pricing re: the cash rate, have resulted in a broader sense of calm in the Australian fixed income space, which bodes well for auctions, and has allowed the AOFM to revert to its typical A$2.0bn/week of ACGB issuance (after operating at A$1.0bn/week over the previous 2 weeks), with the passage of the futures roll also adding to this narrative. The AOFM issuance track has been tending back towards the pro-rata track after running well ahead of schedule, with some suggesting that the AOFM is on track to be "overfunded" vs. real needs if the A$2.0bn/typical week and ACGB Nov '32 syndication come to fruition during the remainder of the current FY.
• A reminder that the previous auction of this particular line resulted in a very rare tail (when comparing average price to prevailing mids at the time of auction), although that was probably a better representation of the situation in broader FI markets at the time, as opposed to idiosyncratic matters re: the line.
• The recent outperformance of Aussie 10s vs. their U.S. Tsy counterparts also bodes well for bidding, as does the record amount of surplus cash lodged on E/S accounts at the RBA, although the recent round of vol. still sits at the fore of participants' minds, so bidding is unlikely to be as firm as it would have otherwise been.
• Results due at 0000GMT/1100AEDT.