Summary: 10-year bond yield up in Australia; ACGB 10-year spread to US Treasury yield rises from -8bps to -6bps; 10-year bond yields up in US, UK, major European markets; $1.95 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields started the week quietly and then trended higher. By the end of the week, the 3-year ACGB yield had added 13bps to 3.44%, the 10-year yield had gained 14bps to 3.74% while the 20-year yield finished 9bps higher at 4.12%. The spread between US and Australian 10-year Treasury bond yields “widened” from -8bps to -6bps.
Over in the US, 10-year bond yields trended up over the week with modest pullbacks on Tuesday and Friday.
S&P Global Market Intelligence’s latest flash reading of its composite index was released on Tuesday, with the index rising from April’s final reading of 53.4 to 54.5. The manufacturing index fell back from 50.2 to 48.5 and the services index gained 1.5 to 55.1. S&P Global’s Chris Williamson said, “While service sector companies are enjoying a surge in post-pandemic demand…manufacturers are struggling with over-filled warehouses and a dearth of new orders as spending is diverted from goods to services.”
The minutes from the FOMC’s May meeting were released the next day. There was nothing particularly surprising in them and the most controversial aspect was the division between officials
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by 0.4% in April and by 4.7% on annual basis, up from 4.6% in March.
The Atlanta Fed’s Nowcast model was also updated. Its June quarter GDP growth estimate was reduced to 1.9% annualised, or a 0.5% expansion over the quarter.
By this point, the US 2-year Treasury bond yield had gained 30bps to 4.56%, the 10-year yield had added 12bps to 3.80% while the 30-year yield finished 3bps higher at 3.96%.
In major euro-zone markets, 10-year bond yields rose pretty much each day except for Wednesday.
The results of May’s consumer sentiment survey were released at the start of the week. They indicated euro-zone sentiment had improved a touch, albeit to a still-pessimistic level.
S&P Global Market Intelligence released its May flash PMI figures for the euro-zone some hours before the US figures on Tuesday. The preliminary reading of the composite index was 53.3, down from March’s final reading of 54.1.
Germany’s ifo Institute released the May reading of its business climate index the next day. The index fell back after increasing for six consecutive months, as firms’ views of current conditions and their collective outlook both deteriorated.
By the end of the week, the German 10-year bond yield had gained 12bps to 2.54% while the French 10-year OAT yield had added 11bps to 3.11%. The Italian 10-year BTP yield increased by 14bps over the week to 4.39% while the British 10-year gilt yield finished 33bps higher at 4.46%.
The AOFM held one vanilla bond tender and one index-linked bond tender this week. $800 million of December 2034 bonds were priced at a yield of 3.56% while $150 million of August 2040 ILBs were priced at a real yield of 1.54%. There was also a Treasury note tender which raised $1 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 $78.2 billion. There are currently $821.35 billion of Treasury bonds and $39.136 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 $30.5 billion of short-term Treasury notes currently outstanding after $8 billion matured on Friday.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 3.78 | 0.06 | 0.32 | 3.78 | 3.70 |
| 21-Nov-24 | 0.25 | 41,300 | 3.68 | 0.07 | 0.39 | 3.68 | 3.60 |
| 21-Apr-25 | 3.25 | 41,500 | 3.59 | 0.10 | 0.40 | 3.59 | 3.47 |
| 21-Nov-25 | 0.25 | 39,200 | 3.47 | 0.13 | 0.34 | 3.47 | 3.33 |
| 21-Apr-26 | 4.25 | 39,100 | 3.44 | 0.13 | 0.28 | 3.44 | 3.31 |
| 21-Sep-26 | 0.50 | 37,800 | 3.44 | 0.12 | 0.27 | 3.44 | 3.30 |
| 21-Apr-27 | 4.75 | 36,700 | 3.44 | 0.13 | 0.25 | 3.44 | 3.31 |
| 21-Nov-27 | 2.75 | 31,400 | 3.45 | 0.13 | 0.23 | 3.45 | 3.31 |
| 21-May-28 | 2.25 | 30,200 | 3.47 | 0.13 | 0.22 | 3.47 | 3.33 |
| 21-Nov-28 | 2.75 | 34,100 | 3.49 | 0.13 | 0.21 | 3.49 | 3.35 |
| 21-Apr-29 | 3.25 | 36,600 | 3.53 | 0.14 | 0.22 | 3.53 | 3.38 |
| 21-Nov-29 | 2.75 | 34,700 | 3.57 | 0.13 | 0.22 | 3.57 | 3.42 |
| 21-May-30 | 2.50 | 37,100 | 3.60 | 0.14 | 0.23 | 3.60 | 3.46 |
| 21-Dec-30 | 1.00 | 38,700 | 3.65 | 0.14 | 0.23 | 3.65 | 3.50 |
| 21-Jun-31 | 1.50 | 38,100 | 3.67 | 0.14 | 0.23 | 3.67 | 3.53 |
| 21-Nov-31 | 1.00 | 21,000 | 3.70 | 0.14 | 0.23 | 3.70 | 3.55 |
| 21-May-32 | 1.25 | 39,300 | 3.72 | 0.14 | 0.23 | 3.72 | 3.57 |
| 21-Nov-32 | 1.75 | 29,000 | 3.73 | 0.14 | 0.24 | 3.73 | 3.58 |
| 21-Apr-33 | 4.50 | 24,400 | 3.73 | 0.14 | 0.23 | 3.73 | 3.59 |
| 21-Nov-33 | 3.00 | 21,100 | 3.75 | 0.14 | 0.23 | 3.75 | 3.61 |
| 21-May-34 | 3.75 | 17,400 | 3.77 | 0.14 | 0.23 | 3.77 | 3.63 |
| 21-Dec-34 | 3.50 | 14,800 | 3.81 | 0.14 | 0.22 | 3.81 | 3.67 |
| 21-Jun-35 | 2.75 | 11,550 | 3.85 | 0.13 | 0.22 | 3.85 | 3.71 |
| 21-Apr-37 | 3.75 | 12,300 | 3.95 | 0.12 | 0.21 | 3.95 | 3.82 |
| 21-Jun-39 | 3.25 | 10,300 | 4.05 | 0.10 | 0.21 | 4.05 | 3.94 |
| 21-May-41 | 2.75 | 13,800 | 4.12 | 0.09 | 0.21 | 4.13 | 4.02 |
| 21-Mar-47 | 3.00 | 14,200 | 4.19 | 0.09 | 0.23 | 4.21 | 4.16 |
| 21-Jun-51 | 1.75 | 19,000 | 4.21 | 0.09 | 0.23 | 4.22 | 4.11 |