01 Aug – 05 Aug 2016

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Government bond yields generally rose offshore over the week but locally bond markets finished mixed. Short end yields were dragged down by the RBA’s 25bps rate cut to 1.50% – 3 years yield fell 2bps to 1.39% while the 10 year yield remained steady at 1.89%. 20 year government bonds rose 5bps to 2.42%.

The local bond market started the week reading reports about weak US Q2 GDP data and then were faced with the Melbourne Institute’s 1.0% inflation reading. Both sets of numbers had bond investors pressing their “buy” buttons and the RBA decision the following day did not alter that view. It was on this day the spread between Australian and US 10 year bonds hit a 15 year low of 28bps. The search for yield has investors whittling down the premium Australian yields attract over comparative US yields however, by the end of the week, and after the release of the SoMP, Australian 10 year yields returned to their starting points and were unchanged on the week.

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Offshore bond yields were generally higher although UK yields finished the week in negative territory after the BoE pressed nearly every button on its monetary policy stimulus console and Italian yields dropped because, well, they’re Italian. Elsewhere in Europe, 10 year German and French yields both rose 5bps. Japanese yields continued to rise as its bond market digested the BoJ’s failure to match market expectations of more bond purchases. As Westpac put it, “The doubling of ETF purchases and by inference reduced JGB purchases and no reduction in negative deposit rates clearly left the market stunned.” US yields rose 14bps with a kick up at the end of the week after July employment figures were considerably stronger than expected.

This week the AOFM issued $1.9 billion of bonds in two tranches comprising $900 million November 2027s and $1 billion July 2022s with coverage ratios of 2.3056 and 2.37 respectively.

Complete list of government and corporate debt issues

AUST GOVT BONDS

MATURITYCOUPON
(%)
ISSUE
SIZE ($M)
CLOSING
YIELD
Δ WEEKΔ MONTHWEEK
HIGH
WEEK
LOW
15-Feb-176.00118281.49-0.11-0.131.561.48
21-Jul-174.25189001.49-0.06-0.091.521.47
21-Jan-185.50205001.47-0.04-0.091.481.43
21-Oct-183.25181001.46-0.05-0.101.481.42
15-Mar-195.25229471.42-0.04-0.101.431.37
21-Oct-192.75217001.42-0.03-0.101.431.37
15-Apr-204.50233971.43-0.03-0.101.441.37
21-Nov-201.75152001.48-0.03-0.091.501.42
15-May-215.75243991.52-0.02-0.091.551.47
15-Jul-225.75214001.62-0.01-0.091.651.56
21-Apr-235.50213001.67-0.02-0.111.731.62
21-Apr-242.75247001.77-0.01-0.101.831.72
21-Apr-253.25261001.830.00-0.091.901.78
21-Apr-264.25291001.870.00-0.081.941.82
21-Apr-274.75256001.920.00-0.081.991.86
21-Nov-272.75104001.970.00-0.082.051.91
21-May-282.2570002.020.00-0.092.101.96
21-Apr-293.25120002.080.01-0.092.162.01
21-Apr-334.50107002.260.04-0.082.342.17
21-Jun-352.7555502.410.05-0.082.502.32
21-Apr-373.7588002.460.05-0.092.552.36
21-Jun-393.2540002.550.05-0.102.642.45