AUCTION PREVIEW: ACGB May '32 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 1.25% 21 May 2032 Bond, issue #TB158. The line was last sold on 14 July 2021 for A$800mn. The sale drew an average yield of 1.3878%, at a high yield of 1.3900% and was covered 5.3213x. There were 42 bidders, 15 of which were successful and 6 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 14.2%.

• The record levels of excess liquidity in the domestic banking system and international relative appeal will continue to underpin demand at AOFM auctions. This week has presented an atypical round of positive RBA purchase-adjusted net supply, although weekly negative RBA purchase-adjusted net supply is seen as the norm in the medium-term, with the potential for the RBA to renege on its tapering move (before it goes into play) evident.
• The line has moved off multi-month richest levels in recent sessions, with the short-term net supply matters and bounce in risk assets at the fore. The 3-/10-Year yield spread hovers a little above multi-month flats, but the slope of the curve is still relatively steep vs. the majority of its international equivalents.
• The hedgability of the line (it falls within the XMU1 basket) should aid what is already expected to be relatively smooth digestion of the auction.
• Results due at 0200BST/1100AEST.