AUCTION PREVIEW: ACGB May-34 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$700mn of the 3.75% 21 May 2034 Bond, issue #TB167. The line was last sold on 29 March 2023 for A$800bn. The sale drew an average yield of 3.3864%, at a high yield of 3.3900% and was covered 3.7812x. There were 52 bidders, 16 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 38.8%.

• This week's ACGB supply continues the trend of relatively low issuance, aligning with AOFM Issuance Update.
• Today’s auction occurs in the shadow of yesterday’s surprise 25bp hike from the RBA. According to the statement, the decision was made to address high inflation, which, although it has peaked, remains at 7%, necessitating further measures to ensure its return to the target range. These points were reiterated in RBA Governor Lowe’s speech this morning.
• The late March auction took place when concerns regarding the global banking sector had started to moderate. Still, there was a strong element of two-way risk to prices, given the elevated levels of inflation and repricing of the RBA’s monetary policy path.
• Alongside the RBA policy uncertainty, the flattening of the yield curve may potentially constrain the overall strength of bidding at today's auction. The 3/10 cash curve reached a new cycle low yesterday, marking the flattest level since 2010.
• Nevertheless, due to a significantly higher outright yield compared to the previous offering, a low level of issuance, and the inclusion of the line in the XMM3 basket, which enhances hedging opportunities, we anticipate at least decent demand.
• Results are due at 0100BST/1100AEDT.