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 17 May 2023 for A$700mn. The sale drew an average yield of 3.5641%, at a high yield of 3.5675% and was covered 3.6643x. There were 44 bidders, 23 of which were successful and 15 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 13.7%.

• This week's ACGB supply continues the run of relatively low issuance, consistent with the lower 2023-24 borrowing requirement outlined in the AOFM’s June’23 Issuance Program Update. Updated guidance on the 2023-24 issuance program will be provided following the MYEFO.
• Given that the present outright yield is notably above the level seen during the May auction and is positioned close to the upper range it has maintained since June 2022, there is an anticipation of sustained strong pricing during today's auction. Additionally, the approximately 30bp steepening of the 3/10 cash curve is likely to bolster demand.
• However, on the downside, it's worth noting that the Jun-35 line isn't part of the XM basket, placing it in a less favoured section of the yield curve. Moreover, the potential necessity to increase the line "up to size" might potentially restrain demand.
• Results are due at 0200 BST/1100 AEST.