There was little in the way of economic data of primary importance this week, either in Australia or offshore. Australian bonds yields were rising from the start of the week perhaps as some bond market investors thought better of holding bonds after both 3 year and 10 year bonds reached records low yields in the previous week. Yields were generally rising offshore and Australia yields largely moved in line. US Fed chief Janet Yellen gave a couple days’ worth of testimony before various Congressional bodies over the week but her comments were largely taken to be a repeat of the FOMC statements, although she did caution markets not to overreact to one or two reports. Yields were rising substantially in the UK as investors added in a discount for uncertainty as the vote approached but it was viewed as a special case and book-makers were expecting the “Remain” camp to win in any case.
Markets were poorly positioned for the result and more than a few investors needed to undo positions taken in anticipation of a “Remain” vote. The success of the “Leave” camp’s campaign produced a quick culling of these positions which led to some quite sizable movement which reversed the movements in the first four days of the week. As we’ve come to expect since 2008/09, investors went into “risk-off” mode. Japan is viewed as one of two safe haven destinations when global markets go into meltdown and there, bond yields became even more negative as 10 year bond yields fell from -0.14% to -0.20%. The other safe haven market is, of course, the US. Yellen’s partially-reassuring responses had allowed US bond market yields to rise by a net 14bps in the first four days of the week but on the fifth day, as UK votes were being tallied, 10 year bonds fell as much as 31bps before closing down 19bps. In almost every advanced economy, bonds were seen as one of the few safe places to invest. Even in the UK, the epicentre of the disturbance, yields on 10 year gilts fell by a massive 29bps on the day of the vote, producing a net 5bps fall over the week. Only in Italy did yields rise (we have come to expect somewhat contradictory market movements there so it is not really any great surprise.) Australian 10 year bonds fell 25 bps on Friday but only 7bps over the whole week.
This week it was back to the standard two bond issues and one Treasury note tender. $900 million April 2026s and $1 billion November 2020s were sold with coverage ratios of 2.4722 and 2.445 respectively.
AUST GOVT BONDS
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