NAB: Focus On Australian Economic Performance

NAB note that "weekly ACGB tenders vs. weekly RBA QE may be supportive to Aussie bonds but it is still the macro outlook which will drive the direction of yields On Friday the AOFM confirmed our earlier thoughts that weekly ACGB tenders would be reduced from A$3-4bn to A$2-3bn. Based on current budget projections (which point to circa A$165bn treasury bond program for 2021/22), weekly tenders are likely to remain at around A$2-3bn into FY22. Under the current QE program, the RBA is purchasing A$4bn of ACGB's a week (5-10-year maturities) until the end of April. So, putting the proposed syndication of a new Nov 2032 bond aside, the weekly supply/demand dynamic shifts from negative A$500mn (previously the AOFM ACGB tenders were averaging A$3.5bn) to negative A$1.5bn. In isolation this demand/supply dynamic may be supportive to the Australian bond market but if the macro-economic outlook continues to improve it will not stop a re-pricing in yields and an under-performance relative to our peers if the Australian economic backdrop looks relatively better. QE will simply cap the rise in yield that otherwise would have been the case."