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 20 Jul 2022 for A$800mn. The sale drew an average yield of 3.5425%, at a high yield of 3.5450% and was covered 3.0025x. There were 41 bidders, 15 of which were successful, and 8 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 84.2%.

• The recent stabilisation away from outright cycle cheaps will be a positive for takedown at today’s auction, although the flatness of the curve will provide a bit of an RV headwind.
• The benchmark 10-Year status of the line is an incremental positive for demand in isolation. In an RV sense, the line remains structurally rich owing to the same benchmark status, although there has been some cheapening away from richest levels on micro flies, potentially as we move towards the futures roll and the switch of the 10-Year benchmark status to ACGB Nov-32.
• The step down in the cumulative DV01 of ACGB issuance should be a positive for ACGB auctions this week, although the continued lack of international participation (linked to uncertainty surrounding the RBA and broader market vol.) will likely continue to cap the cover ratio.
• In terms of event risk, the proximity to the Q2 WPI print and latest RBNZ monetary policy decision across the Tasman (both due later today) may provide a bit of a deterrent.
• Overall, we expect the auction to go smoothly, with comfortable pricing through mids, as has been the typical case for ACGB auctions for some time.
• Results are due at 0200BST/1100AEST.