AUCTION PREVIEW: ACGB May '41 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$400mn of the 2.75% 21 May 2041 Bond, issue #TB156. The line was last sold at auction on 14 October 2019 for A$300mn, although there have been more sizable syndicated taps since then. The October 2019 sale drew an average yield of 1.5699%, at a high yield of 1.5725% and was covered 2.0067x. There were 34 bidders, 13 of which were successful and 7 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 69.7%.

• The small tender size and atypical nature of this round of supply may suggest that the AOFM has unearthed demand via liaison with dealers, although this, as ever, is pure speculation on our part, especially given the turn that AOFM issuance has taken over the last couple of weeks i.e. moving to 3 tenders per week from the "normal" 2.
• While the recent cheapening and steepening presents more attractive entry points on several fronts, we would highlight that the broader reflation theme and limited liquidity backdrop evident across the Asia-Pac region on Monday may present some headwinds, especially given the duration of the line (although the more than digestible DV01 negates some of the duration worry). All in all, the international attractiveness of ACGBS, ongoing RBA QE program and record levels of E/S surplus balances lodged at the RBA should mean that the auction passes smoothly enough.
• Results due at 0000GMT/1100AEDT.