AUSSIE BONDS: ACGB May-32 Supply Well Absorbed

The AOFM sells A$800mn of the 3.75% 21 April 2037 bond, #TB144:

• Average Yield (%): 4.4666 (prev. 4.3459)
• High Yield (%): 4.4675 (prev. 4.3475)
• Bid/Cover: 3.6688x (prev. 3.2188x)
• Allotted at Highest Accepted Yld as % of Bid at that Yld (%): 59.2 (prev. 43.7)
• Bidders: 41 (prev. 34), successful 12 (prev. 14), allocated in full 4 (prev. 7)

Natural gas prices were mixed on Tuesday with Europe sharply lower but the US higher. European gas fell 6.7% yesterday to EUR 43.99 to be down 17.4% this month. It reached a peak of EUR 59.39 on February 11 but has been trending lower on hopes of peace in Ukraine allowing the use of Russian pipeline flows again but a lot has to happen before sanctions will be eased. Also with prices high and storage at below-average levels, German utility Uniper SE has suggested reducing refilling targets to 80% ahead of next winter (Bloomberg). 

• Cold weather and lower wind-driven power resulted in significant inventory drawdown but more recent higher-than-average temperatures have allowed Belgium and France to add slightly to storage, according to Bloomberg. Prices remain elevated though and the market remains vulnerable with significant flows needed to restock ahead of next winter.
• Ukraine’s largest private energy firm DTEK is negotiating LNG import agreements. Supplies will mainly come from the US but also the Middle East (Qatar is a major LNG exporter), according to Bloomberg. The gas would be used to fill its storage facilities, which Europe uses, and would transit through ports in Germany and eastern Europe.
• US natural gas rose 4.7% on Tuesday to $4.18 to be up 37.4% in February. Buyers were attracted to the market following Monday’s 6% fall, which was driven by forecasts for milder weather. The Commodity Weather Group is projecting higher temperatures across much of the US in early March.
• Oil markets have worried about the strength of China’s demand for some time given the lacklustre economic outlook. China has imposed tariffs on US oil and LNG imports but its overall LNG imports were around 13% below the 5-year average according to ANZ.

Bidding at today’s auction of A$800mn of the 3.75% 21 April 2037 bond is likely to be shaped by several key factors: 

• The outright yield is roughly 10bps higher than at the previous auction but remains about 30-35bps below the November 2024 peak.
• The 3/10 yield curve is around 15bps steeper than the previous auction and sits near its steepest level since August 2022.
• Sentiment toward longer-dated global bonds has improved over recent weeks, as reflected in the US 10-year Treasury yield, which is currently 50bps below its recent highs.
• Notably, this bond is included in the XM futures basket, which may lend additional support to demand.
• Overall, firm pricing is still anticipated at today’s auction, given the higher yields and other favourable factors.
• Results are due at 0000 GMT / 1100AEST.