RBC Dig Into Fair Value Of Impending ACGB Dec-34 Syndication

RBC note that the “AOFM announced plans to issue a new 21-Dec-2034. This bond has been flagged for issue in the quarter since January, so it doesn’t come as a complete surprise to markets. It will closely coincide with the Apr-23s maturity.”

• “Assuming a 3.25% coupon, we see fair value at around 10yr EFP +9.5bp. We expect a launch range of around EFP+8.5-11.5bp. Of course, the market has known this was coming at some stage, so there could still be some concession embedded into this part of the curve. AU/U.S. 10y cross-market is well under flat though, but this too remains well within its multi-month range.”
• “A A$14-15bn issue is our baseline expectation given the last 3 new issues in this part of the curve. The last new 10-Year area bond was the May-34s (A$14bn in Nov-22), before that, Nov-33s (A$15bn in April 2022) and before that Nov-32s (A$14bn in April 2021). The AOFM looks flush with cash given almost A$75bn on deposit with the RBA, and the Commonwealth underlying deficit was running ~A$20bn better than expected in the October budget as of end-March. A A$14bn new issue would leave the AOFM with ~A$1.6bn per week to issue over the remainder of FY23 to complete their A$85bn nominal program.”