AUCTION PREVIEW: ACGB Nov-27 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 2.75% 21 November 2027 Bond, issue #TB148. The line was last sold on 3 September 2021 for A$1.0bn. The sale drew an average yield of 0.7875%, at a high yield of 0.7875% and was covered 5.6750x. There were 57 bidders, 11 of which were successful and 1 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 66.3%.

• The light ACGB issuance schedule evident this week is of course supportive for demand, although continued volatility and inflation worry, coupled with Thursday’s resumption of core FI market weakness may limit overall bidding at the auction. Still, most desks seem to be confident that we will get a result that is comfortably through mids (as has been the norm in the post-QE world), given the limited AOFM issuance that will be on offer during the remainder of the current FY and diminished market liquidity, which may force those looking for access to the line to pay up.
• Outright yields on the line sit virtually at cycle highs ahead of the supply, although continued market vol. negates some of the attractiveness in yield terms.
• Indeed, sell-side desks point to a general worry on the part of offshore participants when it comes to vol. in the ACGB space, which is dissuading many from stepping into ACGB longs, even in the wake of the recent cheapening. The hiking cycle that the RBA has embarked on continues to provide many questions, with a defined stabilising factor for yields not forthcoming at present.
• On the curve, the 2-/5-/10-Year fly as moved away from YtD highs registered in late March, purely driven by flattening on the 2-/5-Year leg of the structure (RBA preicng-related). This means that there isn’t much in the way of pure relative value appeal on this front. Note that market pricing surrounding the RBA continues to look extreme, although the lack of a clear trigger point for a reversal e.g. an elongated run of soft data/wider economic growth worry, and the fact that the RBA has only just embarked on its tightening cycle means that many will stay sidelined when it comes to steepner plays, particularly after if they are still smarting by trading fade the recent cheapening/payside flows
• Results due at 0200BST/1100AEST.