AUCTION PREVIEW: ACGB Nov '31 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$2.0bn of the 1.00% 21 November 2031 Bond, issue TB#163. The line was last sold on 10 March 2021 for A$1.0bn. The sale drew an average yield of 1.7759%, at a high yield of 1.7775% and was covered 3.3000x. There were 41 bidders, 10 of which were successful and 4 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 84.2%.

• The recent resumption of order in the ACGB market coupled with the holiday-shortened week, has allowed the AOFM to issue all of this week's ACGB supply via one auction. The negative RBA-adjusted net supply and ample excess liquidity (as evidenced by the record level of cash lodged on E/S surplus accounts at the RBA) continue to underpin domestic demand at auction. The fact that the settlement of today's auction comes after the end of the Japanese fiscal year may also generate demand from Tokyo-based investors.
• We should also flag that the national fiscal situation continues to evolve in a more favourable manner than the government projected (on both sides of the ledger), with increased speculation that the MYEFO (provisionally scheduled for 11 May) may result in lower issuance projections across the forecast horizon and the formal delay of the syndication of the new ACGB Nov '32 until FY21/22.
• These factors should be supportive for the ACGB space, in outright terms and also vs. swaps & OIS. This, coupled with the supportive factors listed above and the potential for an extension to the already outlined ACGB purchases from the RBA will continue to provide at least some counter to the broader reflationary/recovery-cycle narrative that is weighing on the space, and should continue to provide more than ample demand at ACGB auctions.
• Results due at 0100BST/1100AEDT.