AUCTION PREVIEW: ACGB May-28 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 2.25% 21 May 2028, issue #TB149. The line was last sold on 12 July 2023 for A$700mn. The sale drew an average yield of 4.0711%, at a high yield of 4.0725% and was covered 3.6071x. There were 46 bidders, 16 of which were successful and 8 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 85.4%.

• The last outing for the May-28 bond extended the recent trend of firm pricing at ACGB auctions, with the weighted average yield printing 1.43bps through the prevailing mid. However, the cover ratio of 3.6071x was materially lower than the 5.7000x seen at the February 10 auction.
• Back in mid-July, uncertainty regarding the near-term outlook for RBA policy and the flatness of the 3/5 cash curve appeared to cap overall demand. However, the outright cheapening of the line ahead of the July auction provided some offset for those concerns.
• As far as today’s auction is concerned, the May-28 bond's outright yield sits approximately 6bps lower than its early July peak. Moreover, it is comfortably situated near the upper bound of the range within which it has traded since June 2022. This, coupled with a ~10bp steepening of the 3/5 curve over the past month and a half should make it an appealing option for potential buyers.
• Overall, another round of well-received supply is expected.
• Results are due at 0200 BST / 1100 AEST.