AUCTION‌ ‌PREVIEW:‌ ‌ACGB May '32 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 1.25% 21 May 2032 Bond, issue #TB158. The line was last sold on 23 June 2021 for A$1.0bn. The sale drew an average yield of 1.6120%, at a high yield of 1.6150% and was covered 3.8300x. There were 43 bidders, 22 of which were successful and 14 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 34.7%.

• Some desks have identified the fiscal commitments to the NSW COVID situation as a potential drag on demand, given the open-ended nature of that particular situation.
• Elsewhere, we should note that the AOFM has reverted to splitting its ACGB offerings across 2 auctions this week (albeit for an easily digestible A$1.5bn). Some desks have highlighted the need for large enough auctions to attract larger players to the bidding process, with this particular offering deemed to be somewhat borderline/just about acceptable on that front.
• The ~A$800K DV01 on offer today isn't a notable hurdle in isolation, however, outright valuations may provide a bit of a hurdle to broader demand, with the line hovering just off of multi-month richest levels. The same could be said for the relative flatness of the curve. On the other hand, the line's inclusion in the XMU1 futures basket promotes hedgability, which will support demand, although the recent tender history doesn't point to particularly strong demand (and that is before we account for some of the previously outlined headwinds).
• Still, the more than ample levels of liquidity in the domestic banking system, coupled with the international relative appeal of ACGBs should mean that the auction passes smoothly enough in the grander scheme of things.
• Results due at 0200BST/1100AEST.