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 2 February 2022 for A$1.0bn. The sale drew an average yield of 1.9267%, at a high yield of 1.9275% and was covered 3.2250x. There were 42 bidders, 14 of which were successful and 5 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 83.6%.

• The AOFM reverts to type after the tap of longer paper earlier in the week, with A$1.0bn of 10-Year basket bond issuance.
• The hedgability of this line (via XM futures) should promote a slightly firmer cover ratio than what was seen in the first AOFM auction of the week, with the benefits of hedgability clear given the current market vol.
• Still the overall market backdrop means that a cover ratio of 3.00x is seen as “strong,” a lower watermark vs. what was observed at the peak of RBA QE.
• Pricing should remain comfortably through mids, in line with the norm in recent history.
• The line has registered fresh cycle cheaps this morning, with the aforementioned hedgability set to facilitate relatively smooth demand despite market vol.
• Note that the ACGB curve remains flat in a domestic sense, albeit less so in an international sense, so this shouldn’t inhibit wider demand.
• 10s don’t provide much in the way of clear value on the 5-/10-/15-Year butterfly at present, operating around the middle of their YtD range on that structure.
• Modest demand for access to the line has been showing up in the RBA’s SLF data in recent days (although there is 0 borrowing of the line at present). This is rare for an ACGB of this length and provides another indication of decent enough demand at this auction.
• Results due at 0000GMT/1100AEDT.