AUCTION PREVIEW: ACGB Nov-27 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$700mn of the 2.75% 21 November 2027 Bond, issue #TB148. The line was last sold on 6 May 2022 for A$1.0bn. The sale drew an average yield of 3.2963%, at a high yield of 3.3000% and was covered 2.5250x. There were 36 bidders, 18 of which were successful, and 9 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 63.8%.

• Outright, the line has stabilised away from cycle cheaps, with wider recession worry surrounding the U.S. & Europe and a pullback in RBA tightening premium the driving forces there. Outright levels are still cheap enough to generate a solid round of demand.
• The line doesn’t present much in the way of standout value in a micro-RV sense, not looking particularly cheap nor rich on several measures.
• Zooming out, the 5-Year zone continues to look cheaper than 3s and 10s in z-spread terms, with the liquidity premium generated by the 3- & 10-Year futures baskets and the prolonged legacy impact of the RBA’s YCC scheme on the shorter end of the curve at play there. In conventional terms, 5s sit at the richer end of the YtD range on the 2-/5-/10-Year butterfly.
• Overall, we expect smooth passage of the auction, which should price comfortably through mids, although the cover ratio will likely be constrained by the continued lack of international participation, which is partly owing to uncertainty re: the RBA tightening cycle.
• Results are due at 0200BST/1100 AEST.