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 20 September 2023 for A$800mn. The sale drew an average yield of 4.2628%, at a high yield of 4.265% and was covered 3.3438x. There were 40 bidders, 11 of which were successful and 5 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 73.9%.

• This week's ACGB supply falls at the upper end of the weekly issuance range. Nevertheless, it aligns with the reduced 2023-24 borrowing requirement as per the AOFM's June'23 Issuance Program Update. More details on the 2023-24 issuance program will be available after the MYEFO.
• The current outright yield for this line has reached a cycle high, notably exceeding the levels observed at the September 20 auction by approximately +35bps. For most of the period between early July and late September, the outright yield had consistently remained near the upper limit of the range maintained since June 2022.
• Additionally, the 3/10 cash curve has steepened by approximately 20bps since the late September auction.
• These factors set the stage for expectations of solid pricing during today's 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 sitting at its highest level since 2007.
• 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 0100 BST/1100 AEST.