AUCTION PREVIEW: ACGB Nov-23 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 1.75% 21 November 2032 Bond, issue #TB165. The line was last sold on 3 Aug 2022 for A$800mn. The sale drew an average yield of 3.0895%, at a high yield of 3.0900% and was covered 2.4375x. There were 37 bidders, 11 of which were successful, and 3 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 85.9%.

• A 10-Year basket bond kicks off this week’s AOFM issuance slate, with the hedgability of the line a positive, which should boost takedown at the margin.
• The recent cheapening in the space provides a more attractive entry point vs. what was seen at the previous auction (~50bp increase in yields vs. previous auction), although the questions surrounding the terminal rate of the current RBA hiking cycle (which, when coupled with the Bank’s communication issues is keeping many international investors sidelined) and ongoing market vol. may be detrimental to demand.
• The line looks relatively fairly priced in micro-RV terms, with ACGB Apr-33 looking a little cheap.
• The 3-/10-Year yield curve continues to operate within relatively close proximity to the cycle flats, which is another headwind for supply.
• Ultimately, the yield on offer should guarantee another round of smooth enough digestion, with pricing comfortably through mids, as has been the trend in in ACGB auctions in recent times. The cover ratio will be the major swing variable.
• Results are due at 0200BST/1100AEST.