RBC note that the AOFM has announced...>

AUSSIE BONDS: RBC note that the AOFM has announced a new May 2041 to be issued

via syndication in the week beginning 16 July 2018. This is the first new bond

line for FY18-19. "Assuming a 3% coupon, we currently see the fair value range

for the new bond as 10y EFP+40-45bp. There is a fair bit of uncertainty here

though, since this pricing is on the basis of long-end EFPs widening 2.5bp

Friday. If Thursday's EFPs were used this range would have been 2.5bp lower.

Against more stable reference, the Jun-39s, we see fair value as +3-8bp. The

market is likely to keep a concession in place though, particularly given the

preceding long-end flattening. If we had to take a stab at where the bond would

actually price if issued now, including some new issue premium, we'd say

EFP+43bp (or Jun-39+6.25bp). The sharpness of long-end moves Friday suggests we

may well end up tweaking this assessment ahead of the actual issue. At one

stage, we saw 2039s and 2047s move up to 4.5bp wider to 10y EFP before the

market settled down. The AOFM has typically launched new ultra-long bonds with a

5bp initial price guidance range, with the exception of the 2047, which had a

7bp launch range."