RBC: ACGB Jun ‘51 Could Drive Largest Ever Month-End Extensions

RBC are "expecting to see possibly the longest ever index extensions in
the Bloomberg Ausbond 0+Y composite, government and SSA indices at
the end of July. The former two are driven by the new $15bn ACGB Jun
'51, while the SSA lengthening is driven by $6bn in maturities (two large
KFW & EIB lines). In the case of the treasury (or ACGB only) index, we
may have had the longest ever extension if the Jun-51s had been the
only bond issued in the month, as they increase index duration by about
0.036. However, we also had the Nov-25s issued in the middle of the
month, which have a shorter duration than the index and thus drag down
the duration of the whole index by about 0.03. While evidence is mixed on
whether index extensions really do drive long-end performance, we are
nonetheless comfortable holding the new Jun '51 bond as per our trade
recommendation through this period of large extensions, with index-
related flows potentially driving some performance in coming days."