CBA On A Potential ACGB Nov-33 Syndication

CBA note that “the ACGB market is eagerly anticipating the launch of a new ACGB Nov-33, that was flagged by the AOFM to come in the final quarter of the financial year. There would be some expectation a deal is coming with the usual midday announcement on Friday. Such a bond is needed to fill into the futures basket, presumably in time for the December ‘22 10-Year contract. The September contract has the Apr-33, which is a high coupon (4.50%), whereas the rest of the basket have 1.00%, 1.25% and 1.75% coupons.”

• “The AOFM has $A27.7bn of the Jul-22 maturing, falling just in the new financial year and any cash raising ahead of it is still likely to come via the T Note channel.”
• “A new bond would see a current coupon of around 2.75% or perhaps 3.00% depending on the outright level. The higher coupon Apr-33 at 2.79% has a modified duration at 8.738 years, while the ‘at the money coupon of the Jun-35 has a modified duration of 10.9 years. This would place a new bond somewhere in the middle, but closer to the Jun-35 for modified duration.”
• “Such a bond could conceivably be valued from around EFP-3bp to EFP +2bp, depending on how the curve moves. Bonds in the sector have cheapened on an EFP basis, by around 1.5bp over the last few days, which is a significant move for the basket area. There is a modest inversion in the Nov-32/Apr-33 area which relates to the modified duration of the two bonds, Nov-32 being half a year longer. Apr-33 have been a tricky bond for a while, particularly as they have stood out as a tall tree with a high coupon in a forest of low coupon bonds. It was tapped back in February for $A1bn, and previously in December. At both times we noted the high dirty price meant it raised a larger amount of money than face value.”