AUCTION PREVIEW: ACGB May-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 3.75% 21 May 2034 Bond, issue #TB167. The line was last sold on 22 February 2023 for A$900mn. The sale drew an average yield of 3.9713%, at a high yield of 3.9725% and was covered 2.6278x. There were 47 bidders, 20 of which were successful and 8 were allocated in full. Amount allotted at the highest yield as a percentage of amount bid at that yield was 82.2%.

• The AOFM continues to build the line up to size after initial syndication at the backend of calendar ’22,
• The outlined syndication of a new Dec-34 line (some time in the final quarter of the current FY) is seemingly making this area of the curve somewhat cheap in an RV sense.
• The recent market vol. surrounding the fallout from the worry re: the wider global banking sector, which has resulted in outright richening of ACGBs and a notable swing in RBA-dated OIS (no further hikes priced in at present), presents crosswinds for takedown given the elevated inflation situation (albeit with the high in Australian inflation seemingly in the rear-view).
• XM basket inclusion does make the line more hedgible, which is an incremental positive.
• All in, we expected smooth enough takedown of the auction.
• Results due at 0000GMT/1100AEDT.