08 Aug – 12 Aug 2016

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Australian bond yields bucked the global trend for lower yields over the week even though the local market began each day following the lead of the US bond market. The week started on the back of news over the weekend of stronger-than-expected US employment numbers. US 10 year yields climbed 9bps higher and Australian yields dutifully followed. Glenn Stevens’ farewell speech as RBA chief to the Anika foundation had the title “An Accounting” and it commented on the outcomes of various important economic variables. Markets were keen to hear what Mr Stevens had to say but in terms of Australian markets it had little effect on yields. The local market was not open when US retail sales figures drove offshore yields lower at the end of the week and some catch-up is to be expected. By week’s end 3 year bonds remained steady at 1.39% but 10 year and 20 year bond yields both rose 3bps to 1.92% and 2.46% respectively.

As mentioned offshore yields went lower over the week. Some of it was data driven, as in the US, while some of it was central bank driven, as in the UK. The Bank of England held the first reverse auction of its latest QE programme where it expected markets to put bonds up for sale that it could re-purchase. Things did not quite go to plan and it failed to fill its buy order. Yields for various gilts, as UK government bonds are known, dropped in what can only be described as a legalised form of “front-running”; investors and traders anticipate the UK central bank will be forced to accept the prevailing (and lower) yields in future and hence refused to sell to the BoE. This caused a strong rally in bond yields and new record lows for 10 year bonds in the UK, Ireland and Spain. 10 year yields in the US fell 8bps to 1.51%, in the UK they fell 15bps, Japanese yields inched down 1 bp to -0.11% which is where the comparable German 10 year bund finished the week (down 4bps).

3-year-bond-15aug

This week the AOFM was back to its usual practice and it issued $1.9 billion of bonds in two tranches and $500 million of short-term Treasury notes. The two bond tranches comprised $1 billion tranche of April 2027s and a $900 million tranche of April 2023s. The coverage ratios were 2.29 and 2.39 respectively. What was a little out of the ordinary, however, was the repurchase and cancellation of $4.379 billion of July 2017 ACGBs held by the RBA.

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-176.00118281.480.00-0.151.491.48
21-Jul-174.25189001.490.00-0.121.521.49
21-Jan-185.50205001.45-0.02-0.131.481.42
21-Oct-183.25181001.45-0.01-0.121.491.43
15-Mar-195.25229471.42-0.01-0.121.451.39
21-Oct-192.75217001.42-0.01-0.111.451.39
15-Apr-204.50233971.42-0.01-0.111.451.39
21-Nov-201.75152001.480.00-0.081.511.45
15-May-215.75243991.530.01-0.071.561.49
15-Jul-225.75214001.630.01-0.041.661.58
21-Apr-235.50213001.710.04-0.031.741.66
21-Apr-242.75247001.800.04-0.011.841.75
21-Apr-253.25261001.870.040.011.911.81
21-Apr-264.25291001.910.040.031.951.85
21-Apr-274.75256001.960.040.032.001.90
21-Nov-272.75104002.010.030.032.061.95
21-May-282.2570002.060.040.032.112.00
21-Apr-293.25120002.110.040.042.162.06
21-Apr-334.50107002.290.030.072.342.23
21-Jun-352.7555502.440.030.062.502.39
21-Apr-373.7588002.490.030.072.552.43
21-Jun-393.2540002.580.030.072.642.52