Summary: 10-year bond yield up in Australia; ACGB 10-year spread to US Treasury yield rises to +26bps; 10-year bond yields up in US, UK, most major European markets; $1.65 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields slipped at the start of the shortened week but then reversed course and increased at a moderate rate for the next three days. By the end of the week, the 3-year ACGB yield had increased by 17bps to 3.97%*, the 10-year yield had gained 8bps to 4.03%* while the 20-year yield finished 5bps higher at 4.31%*. The spread between US and Australian 10-year Treasury bond yields widened from 22bps to 26bps.
* September futures
Over in the US, 10-year bond yields had a quiet start to the week which was followed by a sharp rise the next day. Yields then reversed course and fell on each of the following two days before rising moderately at the week’s end.
May’s CPI report was released on Tuesday (US time) and it produced a 0.1% increase, less than the expected 0.2%. The annual inflation rate slowed to 4.1% while the core inflation rate slowed to 5.3%.
May producer price indices were released the next day. The index decreased by 0.3% over the month, less than expected, and the annual growth rate slowed to 1.2%.
The FOMC’s two-day meeting also ended on Wednesday but this time the target range for the federal funds rate was left unchanged.
Industrial production numbers for May were released the next day. They indicated production had declined by 0.2%, in contrast with the expected small increase. This latest reading implied annual GDP growth of -2.0%.
May’s retail sales report was also released and it indicated total sales had increased by 0.3% over the month, greater than expected. Vehicle sales had the largest effect on the overall result.
The Atlanta Fed’s Nowcast model was updated. Its June quarter GDP growth estimate was lowered from the previous week’s figure to 1.8% annualised, or a 0.4% expansion over the quarter.
At the end of the week, the University of Michigan’s Consumer sentiment index rose in June but it is still well below its long-term average.
By this point, the US 2-year Treasury bond yield had gained 12bps to 4.72%, the 10-year yield had added 3bps to 3.77% while the 30-year yield finished 2bps lower at 3.86%.
In major euro-zone markets, 10-year bond yields generally declined at the start of the week before rising over the next three days. Yields then fell back at the end of the week.
The euro-zone’s April industrial production figures were released midweek. Output expanded by 1.0% over the month, less than expected.
The Governing Council of the ECB held its June policy meeting the next day. As expected, the ECB raised its three policy rates, all by 25bps. “Inflation has been coming down but is projected to remain too high for too long.”
By the end of the week, the German 10-year bond yield had gained 10bps to 2.47% while the French 10-year OAT yield had added 5bps to 2.97%. The Italian 10-year BTP yield lost 7bps over the week to 4.03% while the British 10-year gilt yield finished 15bps higher at 4.49%.
The AOFM held just the one index-linked bond tender this week; $150 million of November 2032 ILBs were priced at a real yield of 1.49%. There were also two Treasury note tenders which raised $1.5 billion on a short-term basis.
The gross value of all bonds issued by the AOFM in the 2022/2023 financial year-to-date (not taking into account buy-backs or short-term Treasury note tenders) is $79.85 billion. There are currently $822.85 billion of Treasury bonds and $39.286 billion of Treasury index-linked bonds on issue. The next series to mature does so on 21 April 2024 when $35.90 billion worth of bonds are due. There are also $27.0 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 4.34 | 0.12 | 0.88 | 4.36 | 4.22 |
| 21-Nov-24 | 0.25 | 41,300 | 4.29 | 0.18 | 1.00 | 4.29 | 4.12 |
| 21-Apr-25 | 3.25 | 41,500 | 4.19 | 0.20 | 1.03 | 4.19 | 4.01 |
| 21-Nov-25 | 0.25 | 39,200 | 4.07 | 0.19 | 1.04 | 4.07 | 3.88 |
| 21-Apr-26 | 4.25 | 39,600 | 4.02 | 0.19 | 1.00 | 4.02 | 3.83 |
| 21-Sep-26 | 0.50 | 37,800 | 3.99 | 0.18 | 0.98 | 3.99 | 3.82 |
| 21-Apr-27 | 4.75 | 36,700 | 3.97 | 0.17 | 0.94 | 3.97 | 3.81 |
| 21-Nov-27 | 2.75 | 31,400 | 3.95 | 0.15 | 0.91 | 3.95 | 3.80 |
| 21-May-28 | 2.25 | 30,200 | 3.95 | 0.15 | 0.89 | 3.95 | 3.79 |
| 21-Nov-28 | 2.75 | 34,100 | 3.95 | 0.15 | 0.87 | 3.95 | 3.80 |
| 21-Apr-29 | 3.25 | 36,600 | 3.96 | 0.13 | 0.85 | 3.96 | 3.82 |
| 21-Nov-29 | 2.75 | 34,700 | 3.97 | 0.12 | 0.82 | 3.97 | 3.85 |
| 21-May-30 | 2.50 | 37,100 | 3.98 | 0.10 | 0.79 | 3.98 | 3.87 |
| 21-Dec-30 | 1.00 | 38,700 | 3.99 | 0.10 | 0.76 | 3.99 | 3.89 |
| 21-Jun-31 | 1.50 | 38,100 | 4.01 | 0.09 | 0.75 | 4.01 | 3.91 |
| 21-Nov-31 | 1.00 | 21,000 | 4.02 | 0.09 | 0.73 | 4.02 | 3.92 |
| 21-May-32 | 1.25 | 39,300 | 4.02 | 0.08 | 0.71 | 4.02 | 3.93 |
| 21-Nov-32 | 1.75 | 29,000 | 4.03 | 0.08 | 0.71 | 4.03 | 3.93 |
| 21-Apr-33 | 4.50 | 24,400 | 4.03 | 0.08 | 0.70 | 4.03 | 3.93 |
| 21-Nov-33 | 3.00 | 21,100 | 4.04 | 0.07 | 0.69 | 4.04 | 3.95 |
| 21-May-34 | 3.75 | 18,100 | 4.05 | 0.07 | 0.69 | 4.05 | 3.96 |
| 21-Dec-34 | 3.50 | 14,800 | 4.08 | 0.07 | 0.67 | 4.08 | 3.99 |
| 21-Jun-35 | 2.75 | 11,550 | 4.10 | 0.06 | 0.64 | 4.10 | 4.02 |
| 21-Apr-37 | 3.75 | 12,300 | 4.18 | 0.06 | 0.60 | 4.18 | 4.10 |
| 21-Jun-39 | 3.25 | 10,300 | 4.27 | 0.05 | 0.56 | 4.27 | 4.19 |
| 21-May-41 | 2.75 | 13,800 | 4.32 | 0.05 | 0.53 | 4.32 | 4.24 |
| 21-Mar-47 | 3.00 | 14,200 | 4.35 | 0.04 | 0.47 | 4.35 | 4.28 |
| 21-Jun-51 | 1.75 | 19,300 | 4.32 | 0.01 | 0.44 | 4.32 | 4.28 |