Digging Into AOFM CEO Nicholl’s Latest Address

This verse of AOFM chief Nicholl’s latest address is probably porividng some support to ACGBs: “Last year I specifically made mention of how we viewed development of the ultra-long end of the yield curve. Apart from reference to maturity gaps between successive 30-year benchmark bond lines, I highlighted consideration of maturity gaps between the 2041 and 2047 lines. I did that because the 20‑year part of the yield curve hasn’t, at least in our view, developed as a clear point of strategic interest. Even with the US recommencing new 20-year bond lines there doesn’t appear to be any traction for the idea that this part of the yield curve is of any more market interest than say 7 or 15 years. This looks to be the case for most comparable sovereign markets. Another year of observation has only entrenched this view and as such we have decided that no more new maturities are needed around the 20-year point of the AGS curve. In view of that we have abandoned a previous plan to establish a new 2043 or 2044 maturity because we don’t require new 20-year maturities from a portfolio management perspective.” We would suggest the lack of new issuance around this zone of the curve is the major reason for the rally in the ACGB space.

• Nicholl also noted that “At present the most recent Budget announcement is well behind us and a new Budget is to be handed down again in a few months. But until new forecasts are released, we are using current guidance of around $125 billion in Treasury Bonds on which to base the 2022-23 issuance strategy.”
• “In summary the year ahead looks to be far more business as usual in terms of issuance and improving Budget forecasts, but the backdrop of market conditions will present some challenging periods. “
• Full text available here.