Government

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12 June – 16 June 2017

Government bond yields were largely unchanged around the world, although they fell noticeably in Italy and, to a lesser extent, in the U.S. As with any week in which the FOMC meets, trading was subdued in the lead-up. That all changed when May U.S. CPI and retail sales figures sent yields diving just hours prior to the announcement of a rate rise. They partially recovered after the rate announcement and after Janet Yellen said a few soothing words about the short-term nature of recent inflation readings. Australia was largely in step with the bulk of the world’s markets, although yields at the short end and ultra-long end rose.

Movement at the short end of the Australian yield curve was largely influenced by the strong local employment data. Employment growth and a host of other employment data was considerably better than expected. Bond and currency markets were not really prepared for this and so yields rose at the short end as tighter future monetary policy was given more weight. The 3 year yield rose by 5bps for the second week in a row, this time to 1.81%

At the long end of the curve, investors tend to ignore local data and concentrate more on spreads between markets, especially the U.S. Australia spread. The U.S-Australia 10 year spread widened by 7bps to 30bps as the 10 year yield remained steady at 2.45% (10 year yields are now implied from September futures rather the June futures which were used last week). The 20 year yield rose by 4bps to 3.03%.

In European markets, 10 year bond yields were close to be unchanged compared to the previous week. German yields rose 1bp to 0.27%, French yields were unchanged at 0.64% and British yields rose 1bp to 1.01%. Italy proved to be the exception, as usual, and Italian bonds had another week where yields dropped more (-11bps) than elsewhere in Europe.

The AOFM scaled things back this week. There was just the one Treasury bond tender of $800 million May 2028s but there was also a tender for $150 million February 2022 ILBs. The coverage ratios were 3.6333 and 3.26 respectively. The gross value of all bonds and notes issued by the AOFM and not taking into account buy-backs, is now $103.1 billion this financial year.

AUST GOVT BONDS

MATURITYCOUPON
(%)
ISSUE
SIZE ($M)
CLOSING
YIELD
Δ WEEKΔ MONTHWEEK
HIGH
WEEK
LOW
21-Jul-174.25189001.600.010.051.601.59
21-Jan-185.50205001.590.010.061.591.57
21-Oct-183.25181001.600.01-0.031.601.58
15-Mar-195.25229471.660.050.001.661.61
21-Oct-192.75217001.710.05-0.031.711.65
15-Apr-204.50233971.760.06-0.041.761.70
21-Nov-201.75152001.850.04-0.071.851.80
15-May-215.75243991.890.05-0.071.891.84
15-Jul-225.75214002.010.04-0.122.011.96
21-Apr-235.50213002.090.03-0.152.092.05
21-Apr-242.75247002.200.02-0.192.202.16
21-Apr-253.25261002.290.01-0.212.292.25
21-Apr-264.25291002.360.01-0.212.362.31
21-Apr-274.75256002.410.00-0.232.412.36
21-Nov-272.75104002.460.00-0.242.462.41
21-May-282.2570002.500.00-0.242.502.45
21-Nov-282.75110002.520.00-0.252.522.47
21-Apr-293.25120002.550.00-0.252.552.50
21-Apr-334.50107002.77-0.02-0.262.782.73
21-Jun-352.7555502.93-0.03-0.272.942.89
21-Apr-373.7588003.01-0.03-0.273.022.97
21-Jun-393.2540003.11-0.03-0.273.123.07
21-Mar-473.007,6003.33-0.02-0.263.343.30
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