AUCTION PREVIEW: ACGB May-28 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$900mn of the 2.25% 21 May 2028, issue #TB149. The line was last sold on 15 November 2023 for A$800mn. The sale drew an average yield of 4.2116%, at a high yield of 4.2150% and was covered 3.8750x. There were 37 bidders, 12 of which were successful and 5 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 12.5%.

• The last outing for the May-28 bond continued the recent trend of strong demand at ACGB auctions, with the cover ratio increasing to 3.8750x from 3.4625x at the September 29, 2023, auction.
• However, several factors could negatively influence bidding at today’s auction. Firstly, the May-28 bond's outright yield is approximately 7bps lower than it was in November and 35bps lower than the cycle peak in early November last year. Secondly, the 3/5 yield curve is near its flattest point this year.
• Additionally, ACGBs have been under pressure since the RBA’s hawkish stance in June, when the bank considered a rate hike but not a cut, and the release of a higher-than-expected May CPI.
• On the positive side, it's important to note that the May-28 bond is included in the YM basket and that sentiment towards global bonds has improved in recent months.
• Overall, another round of well-received supply is expected.
• Results are due at 0200 BST / 1100 AEST.