AUCTION PREVIEW: ACGB May-34 Supply Due

Today, the Australian Office of Financial Management (AOFM) will sell A$600mn of the 3.75% 21 May 2034 bond, issue #TB167. The line was last sold on 10 July 2024 for A$700bn. The last sale drew an average yield of 4.3708%, at a high yield of 4.3725% and was covered 3.3143x. There were 38 bidders, 14 of which were successful and 4 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 59.3%.

• This week's ACGB supply is around the recent average weekly issuance range, with A$900mn of the 2.75% 21 November 2028 bond issued on Wednesday.
• 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 outright yield is 35bps lower than the early July auction level, 95bps lower than the November high, and currently near the lowest level of the past 12 months.
• However, the 3/10 yield curve is around 10bps steeper than in early May and near the middle of the range it has traded in over the past year.
• The line’s inclusion in the XM basket and Q2’s lower-than-expected core CPI are also likely to be positive factors for demand.
• It is also important to acknowledge that the sentiment towards longer-dated global bonds has improved over recent months.
• 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.