AUCTION PREVIEW: ACGB Jun-35 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$700mn of the 2.75% 21 June 2035 bond, issue #TB145. The line was last sold on 5 April 2023 for A$800mn. The sale drew an average yield of 3.3432%, at a high yield of 3.3475% and was covered 2.2687x. There were 45 bidders, 20 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 91.9%.

• This week's ACGB issuance is relatively low, with only one conventional ACGB being issued. This reflects a more favourable fiscal backdrop outlined in the Federal Budget. In 2022-23, Treasury Bonds issuance is expected to be around A$80 billion, down from the A$95 billion announced in October. Additionally, AOFM issuance is projected to remain light for the upcoming fiscal year, averaging between A$1-1.5 billion per week.
• Although the current level of the line is comfortably higher than recent lows, it is not included in the XM basket, placing it in the less preferred segment of the yield curve. Furthermore, the potential need to increase the line "up to size" may dampen demand.
• While not at extreme levels, the flatness of the yield curve could also present a challenge to demand.
• While there is an expectation for continued firm pricing at auctions, the factors mentioned above could constrain the overall strength of bidding.
• Results are due at 0200BST/1100AEST.