AUCTION PREVIEW: ACGB May-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 3.75% 21 May 2034 Bond, issue #TB167. The line was last sold on 17 March 2023 for A$1.0bn. The sale drew an average yield of 3.4741%, at a high yield of 3.4775% and was covered 3.1000x. There were 52 bidders, 18 of which were successful and 11 were allocated in full. Amount allotted at the highest yield as a percentage of amount bid at that yield was 62.6%.

• General worry surrounding the global banking sphere have moderated from extremes, although it has hardly vanished. Still, there is a strong element of two-way risk to prices at current levels given the elevated levels of inflation and recent repricing of the baseline market view re: the RBA’s monetary policy path.
• The proximity to the monthly CPI print may dissuade some prospective bidders, as may the need for relatively expeditious issuance to bring the line up to size, with ‘only’ A$17.4bn of the line set to be outstanding post supply (note the line was only auctioned 12 days ago and was initially issued via syndication towards the back end of ‘22). The flatness of the 3-/10-Year curve is also a risk to demand, although hasn’t been particularly prohibitive in recent auctions and there has been some steepening away from multi-month flats.
• Still, outright yield levels, worry surrounding the global banking sector and the hedgability of the line owing to XMM3 basket inclusion should mean that we see at least solid demand, with pricing comfortably through mids.
• Results due at 0100BST/1100AEDT.