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 8 December 2021 for A$1.0bn. The sale drew an average yield of 1.6800%, at a high yield of 1.6800% and was covered 4.4830x. There were 42 bidders, 9 of which were successful and 1 was allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 70.4%.

• Today’s auction comes on the back of relative dovish guidance from the RBA (at least vs. expectations going into the meeting), although the central bank did confirm the widely expected cessation of its QE bond buying scheme as of 10 February. A decision on the reinvestment of funds from maturing bonds purchased under the scheme will be considered at the Bank’s May meeting. Note that previous RBA speak had pointed to organic balance sheet runoff, so this could have knock on implications for cash flows in the space further down the line i.e. from April ‘23.
• Cash flow dynamics will ultimately see a modest uptick in issuance during the remainder of the FY (on a w/w basis), looking at pro-rata requirements and assuming no change in issuance requirements, with the surety of RBA purchases removed.
• Outright yields hover just shy of the October & January peaks, printing a touch above 1.90%.
• Several desks have noted that the Nov-31 look a bit rich on the forward curve, although this could very well be linked to its benchmark 10-Year status.
• 10s have rebounded from 2021’s richest levels on the 5-/10-/15-Year butterfly, but don’t look particularly enticing on this structure. Meanwhile, the 3-/10-Year yield spread continues to hover around the post-COVID vol. flats registered in January.
• Results due at 0000GMT/1100AEDT.