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 16 March 2022 for A$1.0bn. The sale drew an average yield of 2.4911%, at a high yield of 2.4925% and was covered 3.3550x. There were 45 bidders, 14 of which were successful and 6 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 94.9%.

• Outright yields are ~20bp off of cycle highs, with wider recession worry and a slight pullback in RBA tightening premium allowing the space to stabilise in recent sessions. This stabilisation may bolster demand at today’s auction.
• The line trades rich vs. most of the surrounding bonds, which is aided by its on-the-run status. The recent steepening of the 3-/10-Year curve (from cycle lows) may help generate some wider spread-related relative interest, although zooming out, we would question the level of interest that current curve levels may generate. Meanwhile, the 5-/10-/15-Year butterfly sits comfortably within its recent range, with 10s away from the recent richest levels observed on this structure (back in December).
• Elsewhere, an AU/U.S. 10-Year yield spread of ~50bp may generate some cross-market demand, although offshore participants are clearly wary of deploying capital in Aussie bonds given the well-documented market vol.
• Ultimately, 10-Year supply has gone fairly well in recent times, and this should be no exception.
• Results due at 0200BST/1100AEST.