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 2 August 2023 for A$700bn. The last sale drew an average yield of 4.0135%, at a high yield of 4.015% and was covered 2.9857x. There were 38 bidders, 18 of which were successful and 8 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 54.4%.

• This week's ACGB supply is consistent with the lower 2023-24 borrowing requirement outlined in the AOFM’s January’24 Issuance Program Update. The update followed the release of the MYEFO in December. A$50bn of Treasury Bond issuance is planned for 2023-24 (of which approximately $24bn was completed as of the end of 2023).
• The bidding at today’s auction is likely to be influenced by several factors. The outright yield is at a similar level to the August auction but around 100bps lower than the November high. Whereas the 3/10 yield curve is 10-15bps steeper than August’s auction levels but 10-15bps flatter than the late October high.
• The line’s inclusion in the XM basket and a sanguine view towards the RBA's policy outlook are also likely to influence the level of demand. RBA-dated OIS is currently pricing 60bps of easing by year-end.
• It is also important to acknowledge that sentiment towards longer-dated global bonds remains positive.
• Results are due at 0000 GMT/ 1100AEST.