AUCTION PREVIEW: ACGB Jun-39 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$400mn of the 3.25% 21 June 2039 Bond, issue #TB147. The line was last sold on 11 August 2021 for A$300mn. The sale drew an average yield of 1.7723%, at a high yield of 1.7750% and was covered 3.1033x. There were 53 bidders, 20 of which were successful and 12 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 53.5%.

• This is an atypical tap for the AOFM, which has reverted to 3 rounds of standard ACGB coupon issuance this week. Dealer liaison may have unearthed some demand for the line, which could buffer the “Monday effect” i.e. lower demand at auction given less time for desk preparation and lower levels of liquidity within broader markets at this time of the week.
• The current levels of market volatility on offer and timing of the auction suggest that we could get another sub-3.00x cover ratio, a level that has provided the litmus test for wider demand when it comes to recent ACGB supply. Still, pricing should be comfortable enough, printing through mids once again, which should mean that there isn’t much in the way of direct market impact post auction.
• A reminder that the curve is flat in local terms (albeit less so in an international sense), which provides a limitation to wider demand. The aforementioned increase in vol. does the same, negating much of the demand impact from the well documented cheapening.
• When it comes to cash flow dynamics and assessing the uptick in nominal issuance size this week, some suggest that the AOFM may have an idea of what is to come in the impending Budget release, while others note that it may be a case of the AOFM having to up nominal issuance size to make up for the loss in cash receipts owing to the ACGB cheapening witnessed in recent months.
• Results due at 0000GMT/1100AEDT.