RBC: ACGB Nov-31 Fair Value Around EFP+9bp, Expect Pricing ~10bp

RBC note that "the AOFM announced it would issue a new 21-Nov-2031 nominal bond via syndication in the week starting 24 August. This is already the third new bond syndication in 2020-21 of the five flagged by the AOFM. We believe there could well end up being more than five, with the possibility of 3rd within-year bonds ahead of us. We see fair value at 3yr EFP+9bp on the basis of current secondary market pricing, assuming a 0.75% coupon. This is equivalent to a yield of 0.9975%, 3.75bp over the Jun-31s, and an ASW of +14.6bp. Our expectation for launch range is EFP+9-12bp, with final pricing around EFP+10bp. The ongoing fast pace of issuance and tight basket pricing suggests that there should be at least a small concession to fair value. The syndicated deals so far this financial year have all had at least a 1bp concession to where we've seen fair value. We note though that 10yr bonds have been hit hard today after the announcement, with the curve steepening ~2.5bp on the day and AU/US 10y widening by around 3bp. On top of this, the 31-33 ACGBs are trading a bit cheap relative to the rest of the curve. So regardless of where the new bond is priced, we believe there is already a decent set-up for investors in this part of the curve. In terms of size, given this is a fairly standard 10y area bond, we would not be surprised if the AOFM reached the $20bn mark for the first time. Conversely, we would be very surprised if the deal was less than $15bn in size. Syndication sizes so far this financial year have been $19bn (Dec-30s), $17bn (Nov-25s) and $15bn (Jun-51s)."