AUCTION PREVIEW:  ACGB Nov-32 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 1.75% 21 November 2032 Bond, issue #TB165. The line was last sold on 31 August 2022 for A$1.0bn. The sale drew an average yield of 3.6086%, at a high yield of 3.6125% and was covered 2.7100x. There were 48 bidders, 30 of which were successful, and 23 were allocated in full. The amount allotted at the highest yield as a percentage of the amount bid at that yield was 4.3%.

• The benchmark status of the line and its hedgability via futures will provide structural sources of demand.
• Meanwhile, outright yield levels, which sit just off of cycle cheaps, are a positive, but come against the backdrop of a flat 3-/10-Year yield curve, limited demand for ACGBs on the part of the international investor cohort and ongoing market vol.
• The line looks pretty fairly valued from a micro-RV perspective. Its benchmark status could promote some structural richening in the weeks ahead.
• The total DV01 of ACGBs on offer via AOFM auction this week is more than digestible.
• Overall, we expect smooth digestion of the auction, although the cover ratio may be capped by the aforementioned headwinds.
• Results are due at 0100BST/1100AEDT.