Government

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14 Aug – 18 Aug 2017

Bond yields moved up a few basis points in most places of the world with the exception of Italy (who would have thought?) and Japan. In Australia, yields on both 3 year and 10 year bonds added 3bps to 1.95% and 2.61% respectively. The 20year bond yield rose by 2bps to 3.16%.

There was not a great deal of primary economic data out during the week but the reports which were released were evenly balanced between those which supported higher yields and those which supported lower yields. New York Fed president Dudley switched markets to “risk on” at the start of the week when he said he expected another rate rise this year and strong U.S. July retail sales figures added fuel to that particular fire. That was until the U.S. Fed’s July minutes were released and the markets found out some members thought the Fed’s inflation models were “not particularly useful” in the current economic set-up. Add in some procrastination as to balance sheet reduction and it began to sound dovish and so bond yields began to fall in major markets. Publication of the ECB June minutes added extra pressure in this direction because they indicated ECB officials were worried “about the risk of the exchange rate overshooting in the future”; markets interpreted ECB concerns as resistance to higher rates. Then there was another atrocity in Europe, this time in Spain and bonds are typically favoured when this happens.

University of Michigan consumer sentiment figures were released on Friday night (AEST) but they made little difference and, by the end of the week, U.S 2 year bond yields were 2bps higher at 1.31% while their 10 year yields were unchanged at 2.19%. The U.S-Australia 10 year spread widened by another 3bps to 42bps.

In other major markets, 10 year government bond yields were generally higher, except in Italy where they fell 1bp to 2.02% and in Japan where they fell 2bps to 0.04%. French yields increased by 3bps to 0.71% and German bond yields and U.K gilts also added 3bps to 0.41% and 1.09% respectively.

AOFM activity in the primary markets returned to its standard practice of two Treasury bond tenders and one $500 million Treasury note tender. $900 million April 2029s and $500 million December 2021s were issued with coverage ratios of 2.96 and 5.62 respectively. The AOFM also bought back $400 million October 2018s and $100 million March 2019s.

The gross value of all bonds and notes issued by the AOFM so far this financial year, not taking into account buy-backs, is $10.9 billion.

AUSTRALIAN GOVT BONDS

MATURITYCOUPON
(%)
ISSUE
SIZE ($M)
CLOSING
YIELD
Δ WEEKΔ MONTHWEEK
HIGH
WEEK
LOW
21-Jan-185.50205001.630.000.031.641.63
21-Oct-183.25181001.640.010.001.651.64
15-Mar-195.25229471.670.02-0.051.691.67
21-Oct-192.75217001.790.03-0.041.821.78
15-Apr-204.50233971.860.03-0.041.891.85
21-Nov-201.75152001.970.03-0.042.001.96
15-May-215.75243992.020.03-0.042.052.01
21-Dec-212.00139002.110.03-0.052.142.10
15-Jul-225.75214002.150.03-0.062.192.15
21-Apr-235.50213002.240.03-0.062.282.24
21-Apr-242.75247002.360.03-0.082.412.36
21-Apr-253.25261002.450.03-0.092.492.45
21-Apr-264.25291002.520.03-0.102.572.52
21-Apr-274.75256002.570.03-0.102.612.57
21-Nov-272.75104002.620.03-0.102.662.62
21-May-282.2570002.660.03-0.102.702.66
21-Nov-282.75110002.690.03-0.092.732.68
21-Apr-293.25120002.710.03-0.102.752.71
21-Apr-334.50107002.910.03-0.102.962.91
21-Jun-352.7555503.070.02-0.113.123.07
21-Apr-373.7588003.140.02-0.123.183.14
21-Jun-393.2540003.250.02-0.113.303.25
21-Mar-473.007,6003.450.01-0.113.503.45
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