AUCTION PREVIEW: ACGB Nov-33 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$1.0bn of the 3.00% 21 November 2033 Bond, issue #TB166. A$15.0bn of the line was last sold via syndication on 12 Apr 2022, with an average yield of 3.14%.

• Note that this is the first tap of the line since its initial syndication in April.
• A$942K of DV01 is on offer, which is sizable when compared to the bulk of recent auctions, albeit digestible enough.
• While the recent narrowing away from wides in the AU/U.S. 10-Year yield spread would usually temper wider demand, international participation in the ACGB space remains limited, largely owing to diminished liquidity and the RBA’s recent reputational hit surrounding it communique re: the tightening of policy. That means the narrowing of that particular spread is likely to be relatively inconsequential when it comes to today’s auction.
• While some desks have flagged a degree of richness in the line evident on the cash curve, we would suggest that the recent stabilisation away from cycle cheaps, slight pickup in yield terms vs. XM futures and wider recent auction history, in addition to the fact that this is the first tap of the line since its initial syndication, should outweigh any worry re: micro RV matters & flatness of the 3-/10-Year yield curve.
• Note that the line is not part of the underlying XMU2 futures basket, which is a marginal negative when it comes to demand.
• We expect this auction to pass smoothly.
• Results are due at 0200BST/1100AEST.