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 4 October 2023 for A$800mn. The sale drew an average yield of 4.6718%, at a high yield of 4.6725% and was covered 3.2062x. There were 45 bidders, 10 of which were successful and 3 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 95.0%.

• 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 is 15-20bps lower than the level observed at the October 4 auction and approximately 50bps lower than the cycle high of 5.01% set in early November.
• Additionally, the 3/10 cash curve has flattened by approximately 20bps since the early October auction.
• These factors could work to limit the bid at today's auction.
• However, on the flip side, it is essential to acknowledge the prevailing bullish sentiment towards longer-dated global bonds, exemplified by the US tsy 10-year yield sitting some 70bps below its cycle peak set late October.
• 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 0000 GMT / 1100 AEST.