NAB Look Into Net Supply In ACGBs & Semis

NAB note that "the RBA's extension of QE locks in negative net supply of ACGBs until September 2021, but RBA buying in the semi market remains much less dominant and net supply there remains materially positive. Budgeted total Semi issuance this year is a bit over half the budgeted nominal ACGB issuance for the year, but only 20% of QE purchases target Semis. Semis need to issue almost A$2.5bn per week at the moment, and the RBA buys A$1.0bn per week."

• "We estimate gross issuance less QE flows into Semis of about +A$50bn between November 2020 and September 2021, or about A$30bn after maturities."
• "We don't think the significantly positive net issuance into Semis and negative net issuance into ACGBs represents an issue. Semi spreads are very tight, despite extremely high issuance, but new primary deals are still finding support. Given Semi spreads are tighter than prior to QE announcement, any impact that QE may be having on government bond yields is also flowing through to outright Semi borrowing costs. There have been significant moves within Semis (for example, TCV moving to the wider end of the market whilst WATC becomes tighter) but these can be explained using regular Semi RV relationships such as issuance volumes and credit ratings."
• "RBA policy for Semi QE is that it will be "guided by the stock of debt outstanding" as well as relative value. Looking at either QE purchases (i.e. since 2 November) or total Semi buying since March, deviations from the debt outstanding have been minor. The biggest divergences are that TCV stock has been purchased a little more often than targeted (+5 ppt) and TCorp a bit less (-4 ppt)."