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 15 May 2024 for A$800mn. The sale drew an average yield of 4.3516%, at a high yield of 4.3225% and was covered 2.9250x. There were 40 bidders, 17 of which were successful and 10 were allocated in full. The amount allotted at the highest yield as a percentage of the bid at that yield was 88.9%.

• This week's ACGB supply falls at the upper end of the weekly issuance range. Based on Budget forecasts, issuance of Treasury Bonds (including Green Treasury Bonds) in 2024-25 is expected to be around $90 billion. In 2023-24, issuance of Treasury Bonds will be around $50 billion.
• The current outright yield for this line is 15-20bps lower than the level observed at the 15 May auction and approximately 80bps lower than the cycle high of 5.01% set in early November.
• Additionally, the 3/10 cash curve has flattened by approximately 10bps since the mid-May auction and is at its flattest level since September last year.
• These factors could work to limit the bid at today's auction.
• However, on the flip side, it is essential to acknowledge that sentiment towards longer-dated global bonds has turned more positive over recent weeks, exemplified by the US tsy 10-year yield sitting some 50bps below its April peak.
• Additionally, it's worth noting that the Jun-35 line is included in the XM basket. However, the potential need to increase the line "up to size" may potentially dampen demand.
• Results are due at 0200 BST / 1100AEST.