AUCTION PREVIEW: ACGB Nov-27 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 2.75% 21 November 2027 Bond, issue #TB148. The line was last sold on 19 August 2022 for A$700bn. The sale drew an average yield of 3.1318%, at a high yield of 3.14% and was covered 3.4142x. There were 40 bidders, 9 of which were successful, and 5 were allocated in full.

• Considering the significant gap since the last issuance of this bond line, it may be more insightful to draw a comparison with the recent auction of the May-28 bond that took place on September 29, 2023. That auction saw firm pricing, although the cover ratio at 3.4625x was weaker than the 3.6071x seen at the prior auction. Additionally, it's important to highlight that the May-28 bond is not part of the YM basket, whereas the Nov-27 bond is included.
• Turning our attention to today's auction, the outright yield for the Nov-27 bond currently stands 25-30 basis points lower than its peak in early July. Nevertheless, it resides comfortably near the upper boundary of the trading range it has maintained since June 2022. This, coupled with the steepest 3/5 yield curve observed since March, should make today's auction an attractive prospect for potential buyers.
• Furthermore, the recent shift in market expectations regarding future RBA policy tightening, coupled with potential safe-haven demand stemming from the ongoing conflict in the Middle East, may provide additional support for today's auction.
• Overall, another round of well-received supply is expected.
• Results are due at 0100 BST / 1100 AEST.