AUCTION PREVIEW: ACGB May-32 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$900mn of the 1.25% 21 May 2032 Bond, issue #TB158. The line was last sold on 5 October 2022 for A$800mn. The sale drew an average yield of 3.6829%, at a high yield of 3.6850% and was covered 2.8188x. There were 42 bidders, 19 of which were successful and 12 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 91.9%.

• Outright yields have moved away from cycle extremes, with calmer markets a positive for takedown at auction, even though the outright yield allure may not be as attractive.
• In terms of wider RV, the 3-/10-Year yield curve is flat giving global monetary policy dynamics & economic worry, while 10s look rich on the likes of the 5-/10-/15-Year butterfly, which may stop the auction from being quite as strong as it could be.
• The line has lost its benchmark 10-Year status, which will likely result in some micro RV cheapening over time, although it still resides within the confines of the basket underlying XM futures, making it easily hedgible.
• All in all, we expect another firm round of pricing at today’s auction, with solid cover.
• Results due at 0000GMT/1100AEDT.