AUCTION PREVIEW: ACGB May-34 Supply Due

Today, the Australian Office of Financial Management (AOFM) will sell A$700mn of the 3.75% 21 May 2034 bond, issue #TB167. The line was last sold on 1 May 2024 for A$800bn. The last sale drew an average yield of 4.4681%, at a high yield of 4.470% and was covered 3.9813x. There were 42 bidders, 16 of which were successful and 9 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 56.2%.

• This week's ACGB supply is around the recent average weekly issuance range, with the sale of A$800mn of the 2.75% 21 November 2029 bond scheduled for Friday.
• According to the June 2024 Issuance Program Update, the AOFM plans to: issue a new December 2035 Treasury Bond by 30 September 2024 (by syndication and subject to market conditions); conduct 2 Treasury Bond tenders most weeks; and hold 1-2 Treasury Indexed Bond tenders each month. Issuance of Treasury Bonds in 2024-25 is expected to be around $90 billion. Around $2 billion will consist of Green Treasury Bond tenders.
• The bidding at today’s auction is likely to be influenced by several factors. The outright yield is around 10bps lower than the early May auction level and around 60bps lower than the November high.
• The 3/10 yield curve is around 15bps flatter than in early May and close to its flattest level since September last year.
• The line’s inclusion in the XM basket is positive but the RBA’s relatively hawkish stance at the June meeting and May’s higher-than-expected CPI may negatively impact demand. RBA-dated OIS indicates a cumulative 60% chance of a 25bp hike by September.
• It is also important to acknowledge that the sentiment towards longer-dated global bonds has improved over the past month.
• While there is an expectation for continued firm pricing at auctions, the above factors could constrain the overall strength of bidding.
• Results are due at 0200 BST / 1100AEST.