AUCTION PREVIEW: ACGB Nov '31 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 1.00% 21 November 2031 Bond, issue #TB163. The line was last sold on 1 September 2021 for A$1.0bn. The sale drew an average yield of 1.2319%, at a high yield of 1.2325% and was covered 5.0700x. There were 55 bidders, 17 of which were successful and 4 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 69.4%.

• The broader global backdrop, led by Fed rhetoric and less worry surrounding China Evergrande contagion, has allowed core fixed income markets to cheapen in recent sessions, facilitating more attractive outright entry points, although the focus has now switched to where will the uptick in yields end, as opposed to the question of have we seen them bottom?
• Still, the well-defined supportive factors will continue to support demand at ACGB auctions, namley negative RBA-adjusted ACGB net supply, international relative appeal and the record level of liquidity in the domestic banking system.
• The hedgability of the line via futures will also promote takedown, as will the recent degree of curve steepening.
• It will ultimately be a case of juggling risks to outright valuations vs. the supportive factors, with most desks pointing to comfortable digestion of supply, although most do not expect one of the stronger tenders of recent times.
• Results due at 0200BST/1100AEST.