AUCTION PREVIEW: May '32 Supply Due

The Australian Office of Financial Management (AOFM) will today sell A$2.0bn of the 1.25% 21 May 2032 Bond, issue #TB158. The line was last sold on 25 November 2020 for A$2.0bn. The sale drew an average yield of 1.0446%, at a high yield of 1.0475% and was covered 2.5235x. There were 46 bidders, 25 of which were successful and 16 were allocated in full. Amount allotted at highest yield as percentage of amount bid at that yield was 23.0%.

• The reflation narrative has generally weighed on the space in recent times, although Tuesday trade represented a round of stabilisation, at least in the short term.
• The chunky DV01 on offer needs to be assessed against the backdrop of the limited amount of total supply on offer this week, indeed, this is the only round of conventional ACGB supply up for auction.
• This, coupled with the recent cheapening, Tuesday's stabilsation and the hedgability of the line via XM futures should support takedown.
• Japanese participants may be further enticed by the FX-hedged yield entry point that the auction provides.
• As ever, the record levels of cash surplus lodged on E/S accounts at the RBA will be looking for a home, adding a further layer of support to the AOFM auction dynamic.
• Results due at 0000GMT/1100AEDT.