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 3 November 2021 for A$1.0bn. The sale drew an average yield of 1.8390%, at a high yield of 1.8425% and was covered 3.2750x. There were 57 bidders, 22 of which were successful and 17 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 27.8%.

• This is the final round of coupon supply from the AOFM for calendar ’21. In terms of the net RBA purchase-adjusted supply dynamic, that will deepen further into negative territory for a couple of weeks, with the Bank set to purchase bonds under its bond “purchase program up until 23 December 2021, and then pause purchases for two weeks over the holiday period. Purchases will resume on 10 January 2022.”
• There was ~A$220mn of borrowing of the line via the RBA’s SLF on Monday, although that was pared back to A$0, per Tuesday’s data.
• The RBA’s continued purchases, particularly amid the break in AOFM issuance, may see increased usage of the SLF, and could support demand at today’s auction (we have seen more pronounced collateral shortages provide strong pricing through mids for bonds in the short end of the curve i.e. with a ’24 maturity, although cover ratios and pricing through mids have generally been trending softer in terms of the wider ACGB issuance space).
• This dynamic will likely offset some of the headwinds provided by the flatness of the 3-/10-Year yield curve. We also note that 10s trade at the richer end of the recently observed range on the 5-/10-/15-Year butterfly structure.
• Hedgability (this is the benchmark 10-Year bond, which of course forms part of the XM basket) should also benefit the auction.
• 10-Year swap spreads have edged back from multi-year wides in recent sessions.
• Ultimately, we expect another smooth round of supply.
• Results due at 0000GMT/1100AEDT.