AUCTION PREVIEW: ACGB Nov-33 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$700mn of the 3.00% 21 November 2033 Bond, issue #TB166. The line was last sold on 22 March 2023 for A$700mn. The sale drew an average yield of 3.3491%, at a high yield of 3.3525% and was covered 3.8671x. There were 41 bidders, 7 of which were successful and 3 were allocated in full. Amount allotted at the highest yield as a percentage of amount bid at that yield was 55.4%.

• This week's ACGB supply continues the recent run of relatively low issuance, consistent with indications last week from Treasurer Chalmers that the 2022-23 surplus would be larger than that forecast in the May Budget. The AOFM stated in its Issuance Program Update that this will contribute to a lower borrowing requirement in 2023-24. Updated guidance on the 2023-24 issuance program will be provided following the MYEFO.
• Today’s auction occurs in the wake of yesterday’s RBA policy decision to leave the cash rate unchanged at 4.10%. The board decided to pause in order to have time “to assess the state of the economy and the economic outlook and associated risks” given the “uncertainty surrounding the economic outlook”.
• A less hawkish RBA combined with a significantly higher outright yield compared to the previous offering, a low level of issuance, and the inclusion of the line in the XMU3 basket, which enhances hedging opportunities, should all work to keep demand solid today.
• The flattening of the yield curve may potentially constrain the overall strength of bidding at today's auction. The 3/10 cash curve sits at a cycle low, marking the flattest level since 2010. Furthermore, the potential need to increase the line "up to size" may dampen demand.
• While there is an expectation for continued firm pricing at auctions, the factors mentioned above could constrain the overall strength of bidding.
• Results are due at 0000 BST / 1100 AEST.