Markets were largely quiet this week in the lead up to the important June Quarter CPI figures. The RBA had intimated that the there was a lot riding on the numbers in relation to whether or not we would see another rate cut and markets were primed for a weak number. In the end the CPI was the lowest headline rate this century at 0.4% for the quarter and 1.6% YoY. The more important underlying rate rose 0.3% for the quarter and 1.6% YoY, still well below the RBA’s target 2.0% to 3.0% band.
The numbers did little to markets with a rate cut on Tuesday 2 August still favoured. Government 3 year bond yields, which had fallen by a larger–than-normal 11bps in the previous week, were steady at 1.41%. Australian 10 year bond yields dropped 3bps over the week to 1.89%, even though 10 year bond yields offshore typically fell by around 10 bps. The largest daily fall for the Australian 10 year government bond (-6bps) occurred on Thursday and this followed some large falls overnight in US and European markets as they digested the latest US central bank interest rate decision (to keep rates unchanged).
Offshore, most of the focus was on the July meeting of the FOMC, the advance US GDP figures and the Bank of Japan meeting. There were some minor date releases including weak durable goods and pending home sales data that sent US yields on a downward trajectory. Mid-week, the US Fed official funds rate was left unchanged as expected and on Friday the June quarter US GDP was reported at 0.3%, annualised 1.2%*; half the 2.5% expected. Not surprisingly, US 10 year yields dropped 5bps on the day and finished down 11bps for the week at 1.45%.
It was a similar story around the world. UK and French 10 year yields dropped 11 bps to 0.68% and 10bps respectively, the German 10 year yield dropped 9bps to -12bps. Only Japanese rates rose as the Bank of Japan on Friday kept its current monetary stimulus programme in place. Its bond purchase programme remained unchanged, as did the official rate at 0.1% but the BoJ did announce the doubling of equity exchange traded fund purchases weakening the yen and pushing the AUD higher.
This week the AOFM issued $1.9 billion of straight bonds in two tranches and $500 million of Treasury notes. The bond sales comprised $1 billion worth of April 2023s and $900 million April 2026s with coverage ratios of 2.995 and 3.710 respectively.
*The US take the quarterly GDP rate and multiply it by four unlike in Australia where the actual year on year change is recorded.
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