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 17 March 2021 for A$1.0bn. The sale drew an average yield of 1.7161%, at a high yield of 1.7175% and was covered 2.8200x. There were 39 bidders, 15 of which were successful and 8 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 82.4%.

• RBA-adjusted negative net supply, the fact that today's auction represents the only round of ACGB issuance this week (as well as presenting a very digestible DV01 level in isolation) and more than ample amount of liquidity among domestic banks should continue to provide the base for solid takedown, although the recent round of interviews with Japanese life insurers painted a fairly mixed picture re: appetite for foreign bonds (whether that be in FX-hedged/-unhedged terms), which may result in growing restraint from a key investor base. Still, the relatively steep ACGB curve continues to provide an attractive proposition for the global investor base, especially given the recent, relative stabilisation for global bond markets.
• 10-Year swap spreads have struggled to print below 0 in recent weeks, with the spread recently widening to levels seen in early March, which could harm demand at the margins.
• Providing counter to this, the hedgability of the line, owing to its inclusion in the XMM1 basket, is a demand positive.
• Results due at 0200BST/1100AEST.