In was almost a reversal of the previous week with bond yield movements larger than usual at the start of the week and gradually moving back as the week wore on. As Chinese equity markets tanked, growth fears spread to global markets. Commodities also saw extreme volatility with the CRB index making 13 year lows. While the origin of the financial market imbroglio was the Shanghai share market it was the Dow Jones falling 1000 points at the opening of a trading session that really spooked investors. An initial “flight to safety” rush into government bonds saw with Australian 10y yields dipping up 2.50% before retracing back over the course of the week. The PBoC stepped in towards the end of the week, reducing official rates and bank loan requirements stabilising equity markets and resulting in bond yields moving back up.
In the case of 3y bonds the market was only 1bp higher at 1.82% but the 10y ACGBs finished at 2.76%, up 15bps. US 10y rates rose from 2.00% to 2.18%, UK 10y rates went from 1.70% to 1.85% and German 10y bonds rose 15bps to 0.74%.
There were two bond tenders last week; $900m Apr 2027s with a coverage ratio of 2.878 and $800m Oct 2019s with a coverage ratio of 3.959.
On the economic data front, second quarter construction and investment data was overshadowed by the ructions on offshore markets and had little impact. The AUD fell $US1.41c to finish at $US0.7170.
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