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 17 Aug 2022 for A$800mn. The sale drew an average yield of 3.2691%, at a high yield of 3.2725% and was covered 2.6500x. There were 48 bidders, 22 of which were successful, and 16 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 2.8%.

• The fact that this represents the only round of ACGB supply this week, coupled with the digestible auction size (in both DV01 & notional terms), should be supportive of takedown.
• The benchmark status of the line (some will prefer to look at ACGB Nov-32) leaves it looking a little rich vs. surrounding lines, although the level of richness isn’t out of the norms of benchmark status and the status is a positive for takedown on net, given hedgability and related demand.
• The recent cheapening will help with digestion, although the flatness of the curve and the potential for a higher for longer U.S. Fed policy rate setting may keep some sidelined.
• A reminder that levels of cover at ACGB auctions have normalised somewhat during ’22, given the withdrawal of the RBA’s QE bond buying schemes and RBA policy uncertainty, which has left many international investors on the sidelines.
• Results are due at 0200BST/1100AEST.