AUCTION PREVIEW: ACGB Jun-51 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$300mn of the 1.75% 21 June 2051 Bond, issue #TB162. The line was last sold on 27 June 2022 for A$600mn. The sale drew an average yield of 3.8350%, at a high yield of 3.8450% and was covered 1.5533x. There were 60 bidders, 36 of which were successful, and 31 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 38.2%.

• The timing of the auction (Monday morning local time is the most illiquid time of the week for global markets) and the flatness of the broader curve presents clear headwinds when it comes to takedown, with the cheapening observed since Friday’s close possessing the potential to keep some sidelined.
• Zooming in to micro-RV, the ACGB Mar-47/Jun-51 spread operates off of cycle extremes, but is still inverted, which presents some headwinds to takedown. Furthermore, the line looks a little rich in ZCS and forward yield terms as well.
• The uptick in ACGB DV01 on offer this week (across 3 auctions) is also a background negative.
• Note that the AOFM liaison scheme may have unearthed demand for the line, while the move back towards 4.00% in outright yield terms should generate enough baseline demand, even if offshore investors remain unwilling to take on Australian duration owing to continued market vol. and uncertainty re: RBA policy.
• Ultimately, we should see smooth enough digestion of the line, as has been the general case for ACGB supply in recent times, although the above matters present headwinds for this specific auction and may limit the cover ratio (as we saw at the previous auction of the line).
• Results are due at 0200BST/1100AEST.