AUCTION PREVIEW: ACGB May-41 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$300mn of the 2.75% 21 May 2041 bond. The line was last sold on 16 August 2023 for A$500mn. The sale drew an average yield of 4.5139%, at a high yield of 4.5175% and was covered 2.100x. There were 45 bidders, 23 of which were successful and 17 were allocated in full.

• The AOFM also plans to sell A$800mn of the 2.50% May-30 bond on Friday. Accordingly, this week's ACGB supply is on the high side of the A$800mn per week pace consistent with the lower 2023-24 borrowing requirement outlined in the AOFM’s January’24 Issuance Program Update.
• The bidding at today’s auction is likely to be influenced by several factors. The outright yield is around 10bps lower than the level at the August auction and approximately 90bps lower than the November high.
• The 3/10 yield curve is also around 10bps steeper than August’s auction levels but 10-15bps flatter than the late October high. The 10/20 curve, on the other hand, is at a similar level to August.
• A sanguine view towards the RBA's policy outlook, after the removal of the explicit tightening bias in March, should positively influence the level of demand. RBA-dated OIS is currently pricing 34bps of easing by year-end.
• However, it is also important to acknowledge that the positive sentiment towards longer-dated global bonds has waned since the start of the year.
• Results are due at 0100 BST/ 1100 AEST.