AUCTION PREVIEW: ACGB Sep-26 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$800mn of the 0.50% 21 September 2026 bond. The line was last sold on 6 March 2023 for A$500mn. The sale drew an average yield of 3.5612%, at a high yield of 3.5625% and was covered 5.2400x. There were 41 bidders, 8 of which were successful and 8 were allocated in full.

• The previous issuance of this bond line performed excellently, with the cover ratio surpassing the 5.00x mark. It's worth noting that the limited number of successful bidders indicated that some investors were willing to pay a premium for access to this particular line.
• There is a degree of uncertainty regarding the immediate RBA policy outlook in anticipation of the upcoming Policy Decision next week, which could potentially limit demand.
• The release of Q3 and September CPI data on Wednesday revealed higher-than-expected figures, including the core measures.
• During RBA Governor Bullock's appearance before the Senate Economics Committee yesterday, she provided few insights into the likely outcome of the November 7 meeting. She mentioned that the bank's forecasts will be adjusted in November, but that it remains unclear whether there will be a "material" change in the inflation outlook and, consequently, a return to the target.
• Despite these policy concerns, the recent cheapening for this line, leading to a fresh cycle yield high, is expected to provide some degree of counterbalance. Additionally, the line's hedgability, given its inclusion in the YM futures basket, is likely to bolster demand.
• However, it's important to note that the more than 50bp steepening observed since mid-June may somewhat constrain today's bidding.
• On the whole, another round of supply is expected to be well-received.
• Results are due at 0100BST/1100AEST.