AUCTION PREVIEW: ACGB Jun-35 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 2.75% 21 June 2035 bond, issue #TB145. The line was last sold on 9 August 2023 for A$700mn. The sale drew an average yield of 4.0290%, at a high yield of 4.0325% and was covered 3.0171x. There were 44 bidders, 26 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 6.0%.

• This week's ACGB supply is at the high end of weekly issuance range but comes after a week of no nominal bond issuance. Accordingly, issuance remains 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.
• The current outright yield stands notably higher than what was observed during the August auction, hovering close to the upper bound of the range it has maintained since June 2022. This sets the stage for an expectation of robust pricing during today's auction. Furthermore, the 3/10 cash curve has sustained the 30bp steepening that was witnessed in the lead-up to the August auction.
• However, on the flip side, it is essential to acknowledge the prevailing bearish sentiment towards longer-dated global bonds, exemplified by the US Treasury 10-year yield reaching its highest level since 2007 overnight. Additionally, it's worth noting that the Jun-35 line is not included in the XM basket, placing it in a less favoured segment of the yield curve. Moreover, the potential need to increase the line "up to size" may potentially dampen demand.
• Results are due at 0200 BST/1100 AEST.