CBA Look To Monetise View That ACGB Nov '32 Syndi Will Be Delayed

CBA note that "over recent months we have published a strong view that the AOFM borrowing task, and more broadly the total public sector borrowing requirements will fall. Government revenues have roared back to life as unemployment has fallen, iron ore has delivered a massive royalty revenue and outlays have dropped as JobKeeper has rolled off. As such, the funding needs have fallen away sharply in this time."

• "Earlier this week, we flagged the AOFM's borrowing task is effectively funded for the year, which would reduce the need for the syndicated supply of a new ACGB Nov '32. We hold a non‑consensus view that such a bond could be delayed until FY22."
• "While fixed income markets have sold off and the ACGB curve has steepened, the May '32 line has cheapened ahead of the expected supply."
• "If we are correct with a delay in the Nov '32 syndication, we would expect a repricing in that sector. We favour owning the ACGB 1.25% May '32 on a butterfly against the ACGB 3.25% Apr '29 and ACGB 2.75% Jun '35. The current spread is 19.3bp and we would target a move to 7.0bp, with a stop at 24.0bp."
• "An alternative approach to this would be to own the ACGB May '32 on an asset swap basis. It is trading towards the cheaper end of the recent range and a lack of supply in this tenor (via syndication), as well as a reduced program overall and the ongoing asset purchases from the RBA which include this bond should drive a richer bond/swap spread. Enter this trade at ‑8bp with a target of ‑20bp and a stop at ‑3bp."