30 May – 03 Jun 2016

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US and UK bond markets were closed on Monday. When they reopened yields fell and continued to fall each day.

The ECB left its official rate on hold and said it expected ”the economic recovery to proceed at a moderate but steady pace.” It also announced the previously-flagged corporate bond purchase program will start on 8 June while continuing its other bond purchase programmes. European inflation forecasts were raised a little for 2016 but left unchanged for 2017 and 2018.

By the end of the week, most data had indicated a distinct lack of inflationary pressure but the release of a shock US payrolls number saw yields crushed. Universally described as a “shocker”, the employment numbers were well below expectations, even after allowing for some one-off events which lowered the figures. While the official unemployment rate fell, it was only because of lower participation rate. Downwards revisions to the previous three months’ figures did not help.

US yields for 2 year and 10 year bonds both fell over 10 bps. Yields in European countries followed suit, although to a less extent, possibly because they are all close to zero anyway. The Australian bond market had closed for the week before the US figures came out but they were already on a downward trajectory and finished close to the low for the week. The Australian 10 year bond yield finished at 2.23%, down 2 bps while 3 year bonds were flat and the 20 year bond yield fell 5bps to 2.82%.

australia-bonds-3jun

In Europe, 10 year bonds in Germany, France and Italy all fell 4bps to 0.07%, 0.42% and 1.33% respectively. The UK is possibly being treated a little differently due to the uncertainty surrounding the Brexit vote and the 10 year bond yield fell 7bps to 1.28% there. In the US, the comparable bond yield finished the week at 1.70%, down 10bps.

The AOFM held the standard two vanilla bond tenders and one Treasury note tender. $900 million November 2020s and $1 billion April 2027s were sold with coverage ratios of 3.30 and 2.05 respectively. However there was an event which one does not see often and that was the AOFM purchase and cancellation of $9.3 billion worth of February 2017 bonds. Normally the AOFM is the issuer, not the buyer of bonds and the purchase may be the result of excess cash in government coffers after taxation receipts were larger than anticipated.

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-164.75219001.750.01-0.241.751.73
15-Feb-176.00210961.690.02-0.201.711.68
21-Jul-174.25189001.690.03-0.181.721.68
21-Jan-185.50205001.650.02-0.211.681.64
21-Oct-183.25135001.620.00-0.241.671.62
15-Mar-195.25214471.580.00-0.271.641.58
21-Oct-192.75117001.610.00-0.281.661.61
15-Apr-204.50203971.63-0.01-0.281.691.63
21-Nov-201.7550001.72-0.01-0.281.771.72
15-May-215.75222991.76-0.02-0.301.821.76
15-Jul-225.75182001.91-0.01-0.301.981.91
21-Apr-235.50213002.00-0.01-0.302.062.00
21-Apr-242.75229002.11-0.02-0.292.182.11
21-Apr-253.25189002.18-0.02-0.292.252.18
21-Apr-264.25169002.23-0.02-0.292.302.23
21-Apr-274.75151002.29-0.03-0.282.362.29
21-Apr-293.2597002.46-0.03-0.272.532.46
21-Apr-334.5098002.65-0.04-0.282.722.65
21-Jun-352.7542502.82-0.05-0.282.902.82
21-Apr-373.7575002.85-0.06-0.292.942.85
21-Jun-393.2540002.95-0.07-0.283.042.95

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