In Australia, domestic data in the form of NAB’s business conditions and confidence survey showed the best business conditions in 8 years. Added to this was the strong March employment data making Australian economic conditions look quite solid. As a consequence, bond yields rose strongly and even more than global bond yields. Australian 3 year bond yields rose 17bps to 1.96% and 10 year yields rose 16bps to 2.56%. Rate cut expectations were chopped back considerably.
Globally it was a “risk-on” week and so yields around the world rose with the exception of Japan, which as we are discovering, is a special case. The yield rises over the week were not especially large; US 10 year Treasury bond yields increased by 4bps, as did the equivalent French yield, while their German, British and French counterparts rose 3bps. Offshore demand for US Treasury bonds is strong, with an estimated two thirds of the latest 30 year bonds for tender sold to non-US bidders, as non-US investors search for yield in a negative interest world.
US and UK economic data has been mixed; UK core CPI is at its highest in 15 months but US CPI weakened for both headline and core measures and at the end of the week the University of Michigan’s consumer sentiment survey disappointed those looking for signs of ongoing US economic strength.
This week we also saw the standard two Treasury bond tenders and one Treasury note tender but in addition, there was a tender for $100 million November 2018 index linked bonds which were sold at a real yield of 0.3798% and a coverage ratio of 5.410. The standard bond tenders saw $900 million April 2027s and $800 million April 2020s sold at coverage ratios of 2.7944 and 3.1750 respectively.
AUST GOVT BONDS
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