RBC Expect Plenty Of Demand For ACGB May-34 Syndication

RBC note that “the AOFM today launched their new ACGB May-34 with a 3.75% coupon at a range of 10yr EFP+6 to 9bp, with pricing to take place tomorrow.”

• “We see fair value at 6bp. This estimate has been quite stable between our initial assessment on 28th Oct and today, staying in a 6 +/-0.5bp range, depending on curve movements. Anything above 6.5bp will, in our view, represent a decent new issue concession.”
• “Market factors supportive of the new issue include the highest outright yields on offer since 2014, positive 10-Year basket basis and a steep 3-10s curve relative to offshore.”
• “Working in the opposite direction and possibly dampening demand is the level of AU/U.S. 10-Year spread (tightest since the onset of COVID-19), wide swap spreads and an elevated AUD/JPY (though Japanese buyers do not typically take down much via primary).”
• “Overall, we think the pricing range suggests there will be decent value on offer, and suspect investor demand will allow the AOFM to issue well over A$15bn if they choose to do so. Given they are aiming to fund A$95bn via nominal issuance in FY23 and are currently running well behind pro-rata pace, we think a deal in the range of A$15-20bn makes sense, for which pricing at EFP+7bp should be enough. We estimate the new bond will have a modified duration of around 9.25.”