22 Feb – 26 Feb 2016

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Australian government bonds yields went lower after the previous week’s “dead cat bounce” to finish the week back within striking distance of March 2015’s record lows. Yields on 3 year and 10 year bonds fell 5bps to 1.72% and 2.39% respectively while 20 year bond yields dropped 3bps to 2.92%. Domestically the markets were only slightly affected by the Capex and wages data. The April 2033 tender on Friday was very well bid with the yield 2.16bps below the midpoint of trading just prior to the tender.

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Falling yields were the theme for most advanced economies, although the US bucked the trend and 10 year bond yields went up 2bps there. Demand for low risk sovereign debt is still strong and French and German 10 year yields fell 6bps to 0.14% (close to joining Japan in negative territory) and 0.51% respectively. Italian bond yields fell 8bps to 1.48%.

Part of the reason for rising yields in the US and falling yields in Europe is the comparative states of their economies. In the US underlying inflation is rising, albeit slowly and off a low base.  Underlying CPI figures released at the start of the week were higher than expected (although the headline CPI was 0.00%) and at the end of the week, the US Fed preferred inflation indicator, the core PCE deflator, rose 0.3% in December and 1.7% over the year. Economic growth is also looking better as second-estimate Q4 GDP figures were higher than expected.

In Europe, rather than central banks talking about a path to rate “normalisation”, the ECB is talking about rates more negative than now. The best performing European economy, the UK, recorded Q4 GDP at 1.9% year on year but inflation shows no signs of increasing and the BoE chief has hinted recently of a preparedness to reduce the official rate from 0.5% is necessary.

Complete list of government and corporate debt issues
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AUST GOVT BONDS

MATURITYCOUPON
(%)
ISSUE
SIZE ($M)
CLOSING
YIELD
Δ WEEKΔ MONTHWEEK
HIGH
WEEK
LOW
15-Jun-164.75219001.98-0.02-0.022.001.98
15-Feb-176.00210961.91-0.020.001.931.91
21-Jul-174.25189001.80-0.06-0.111.881.80
21-Jan-185.50205001.76-0.05-0.191.841.76
21-Oct-183.25135001.72-0.05-0.211.801.72
15-Mar-195.25214471.72-0.05-0.221.801.72
21-Oct-192.75117001.76-0.05-0.241.841.76
15-Apr-204.50203971.79-0.05-0.241.871.79
21-Nov-201.7550001.90-0.05-0.241.981.90
15-May-215.75222991.94-0.06-0.262.031.94
15-Jul-225.75182002.10-0.04-0.272.172.10
21-Apr-235.50213002.18-0.04-0.302.252.18
21-Apr-242.75229002.28-0.04-0.332.352.28
21-Apr-253.25189002.33-0.04-0.342.402.33
21-Apr-264.25169002.39-0.04-0.352.452.39
21-Apr-274.75151002.45-0.04-0.352.522.45
21-Apr-293.2597002.62-0.04-0.352.692.62
21-Apr-334.5098002.81-0.03-0.322.872.81
21-Jun-352.7542502.96-0.04-0.313.022.96
21-Apr-373.7575002.99-0.03-0.293.062.99
21-Jun-393.2540003.05-0.03-0.293.113.05

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