12 Sep – 16 Sep 2016

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10 year bond yields around the globe were quite steady this week. The yields on US and UK 10 year bonds rose a tad and those of Japan, France and Germany were all slightly negative. Australian bonds on the other hand were smashed for the second week running. 3y bonds rose 13bps to 1.56%, 10y bonds rose 15bps to 2.11% and 20y bonds rose 22bps to 2.73%. The previous week 3y bonds rose 11bps, 10y bonds 12bps and 20y bonds 10bps.

So why did Australian yields rise so much? The spread between the Australian 10 year bond and the US 10 year bond has been narrowing since late 2010 and it has not been this low since early 2001. The answer is not clearcut but most of the rise in Australian yields occurred at the very start of the week in response to strong rises offshore. When global yields reversed course in the middle of the week, Australian yields remained steady as investors digested unemployment figures which looked strong, at least on the surface.

There is also the upcoming issue of Australia’s first vanilla 30 year bond. Investors have been selling longer dated bonds with gusto in preparedness and Westpac has noted the effect on the yield curve. It said “In conjunction with the bearish global backdrop and the view that the BoJ wishes to steepen up the JGB curve, this has seen a dramatic re-pricing at the long end of the Australian market that we do not think is over just yet.”

AOFM bond sales were out of the ordinary this week and well down on the standard $1.5-$2.0 billion raised in a typical week. $150 million September 2025s index-linked bonds and $700 May 2028s were issued with coverage ratios of 3.6786 and 2.3333 respectively.

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AUST GOVT BONDS

MATURITYCOUPON
(%)
ISSUE
SIZE ($M)
CLOSING
YIELD
Δ WEEKΔ MONTHWEEK
HIGH
WEEK
LOW
15-Feb-176118281.620.010.131.621.61
21-Jul-174.25189001.610.030.111.621.59
21-Jan-185.5205001.570.010.121.601.57
21-Oct-183.25181001.570.020.121.591.57
15-Mar-195.25229471.600.080.191.631.57
21-Oct-192.75217001.610.090.201.641.58
15-Apr-204.5233971.630.090.211.651.59
21-Nov-201.75152001.690.090.211.711.65
15-May-215.75243991.740.100.211.761.69
15-Jul-225.75214001.860.120.231.871.81
21-Apr-235.5213001.920.110.211.931.88
21-Apr-242.75247002.020.140.212.031.96
21-Apr-253.25261002.080.150.222.082.02
21-Apr-264.25291002.110.140.202.112.05
21-Apr-274.75256002.150.130.192.152.10
21-Nov-272.75104002.200.140.202.212.15
21-May-282.2570002.260.140.202.272.21
21-Apr-293.25120002.330.160.222.342.26
21-Apr-334.5107002.540.190.252.542.44
21-Jun-352.7555502.710.210.272.712.59
21-Apr-373.7588002.780.220.292.782.66
21-Jun-393.2540002.910.250.322.912.75