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 7 June 2023 for A$700bn. The last sale drew an average yield of 3.8475%, at a high yield of 3.8500% and was covered 4.2714x. There were 43 bidders, 12 of which were successful and 6 were allocated in full. Amount allotted at the highest yield as a percentage of amount bid at that yield was 40.6%.

• This week's ACGB supply continues the run of relatively low issuance, consistent with the lower 2023-24 borrowing requirement outlined in the AOFM’s June’23 Issuance Program Update. Updated guidance on the 2023-24 issuance program will be provided following the MYEFO.
• Today's auction follows the RBA's decision yesterday to maintain the cash rate at 4.1% for the second consecutive month. This led to a softening in RBA-dated OIS pricing, with terminal rate expectations about 10bp to 4.23%. Yesterday, XMU3 and the cash Dec-34 line saw gains in post-RBA trading, but some of those gains have been reduced today.
• The more dovish assessment of the RBA’s policy outlook, combined with a still elevated outright yield, a steeper curve, a low level of issuance, and the line’s inclusion in the XM basket, which enhances hedging opportunities, are expected to drive strong demand at today's auction.
• Results are due at 0200BST/1100AEST.