AUCTION PREVIEW: ACGB May-32 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 1.75% 21 May 2032 Bond, issue #TB158. The line was last sold on 17 Jun 2022 for A$800mn. The sale drew an average yield of 4.1150%, at a high yield of 4.1150% and was covered 2.7670x. There were 48 bidders, 1 of which was successful and allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 100.0%.

• We expect this auction to go smoothly enough, considering the easily digestible DV01 on offer and recent ACGB auction history.
• Stabilisation off of outright cycle cheaps will aid takedown at today’s auction.
• The line is rich in terms of micro RV, although this is at least in part owing to the benchmark status of the line, which also promotes hedgability, an incremental positive for the auction. These offsetting factors lead desks to suggest that the line isn’t particularly rich, nor cheap.
• Note that international investors remain cautious when it comes to deploying capital in ACGBs, given recent RBA communique issues, which is likely limiting the overall cover ratios observed at ACGB auctions.
• Conversely the lack of liquidity in the space is probably fuelling strong pricing at auctions, as participants are willing to pay up to gain access to bonds e.g. the previous auction of this line saw only 1 successful bidder who paid up to guarantee access to the line.
• Results due at 0200BST/1100AEST.