Summary: 10-year bond yield up substantially in Australia; ACGB 10-year spread to US Treasury yield rises from -14bps to -8bps; 10-year bond yields up in US, UK, major European markets; $1.7 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields increased materially at the start of the week before pulling back modestly the next day. Yields rose by increasing amounts over the remainder of the week. By this point, the 3-year ACGB yield had gained 31bps to 3.31%, the 10-year yield had added 27bps to 3.60% while the 20-year yield finished unchanged 23bps higher at 4.03%. The spread between US and Australian 10-year Treasury bond yields “widened” from -14bps to -8bps.
Over in the US, 10-year bond yields started the week with a modest rise which set the pattern for the remainder of the week.
Industrial production for April were released on Tuesday. They indicated production had increased by 0.5%, more than the flat result which had been expected. This latest reading implied annual GDP growth of 2.0%.
April’s retail sales report was also released and it indicated total sales had increased by 0.4% over the month, less than expected. Internet sales had the largest effect on the overall result.
The Atlanta Fed’s Nowcast model was updated midweek. Its June quarter GDP growth estimate was raised to 2.9% annualised, or a 0.7% expansion over the quarter.
The Conference Board’s April reading of its Leading Index posted a 0.6% drop on Thursday, slightly worse than expected.
By the end of the week, the US 2-year Treasury bond yield had gained 27bps to 4.26%, the 10-year yield had added 21bps to 3.68% while the 30-year yield finished 14bps higher at 3.93%.
In major euro-zone markets, 10-year bond yields took a broadly-similar path to US Treasury bonds although they paused midweek and declined modestly at the end of the week.
The euro-zone’s March industrial production figures were released at the start of the week. Output contracted by 4.1% over the month, worse than expected, and in contrast with February’s 1.5% expansion.
Germany’s ZEW May survey was published the next day. It indicated its Economic Sentiment index had fallen again, this time from April’s reading of 4.1 to -10.7. ZEW’s current conditions index also deteriorated, from -32.5 to -34.8. ZEW President Achim Wambach noted respondents “anticipate a worsening of the already unfavourable economic situation in the next six months.”
By the end of the week, the German 10-year bond yield had gained 15bps to 2.42% while the French 10-year OAT yield had added 16bps to 3.00%. The Italian 10-year BTP yield increased by 8bps over the week to 4.25% while the British 10-year gilt yield finished 22bps higher at 4.13%.
The AOFM held just the one bond tender this week. $700 million of June 2035s were priced at a yield of 3.56%. 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 $77.25 billion. There are currently $820.55 billion of Treasury bonds and $38.986 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 $37.5 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 3.72 | 0.26 | 0.50 | 3.72 | 3.46 |
| 21-Nov-24 | 0.25 | 41,300 | 3.61 | 0.32 | 0.54 | 3.61 | 3.29 |
| 21-Apr-25 | 3.25 | 41,500 | 3.49 | 0.33 | 0.52 | 3.49 | 3.16 |
| 21-Nov-25 | 0.25 | 39,200 | 3.34 | 0.32 | 0.42 | 3.34 | 3.03 |
| 21-Apr-26 | 4.25 | 39,100 | 3.32 | 0.30 | 0.36 | 3.32 | 3.02 |
| 21-Sep-26 | 0.50 | 37,800 | 3.32 | 0.30 | 0.35 | 3.32 | 3.02 |
| 21-Apr-27 | 4.75 | 36,700 | 3.32 | 0.29 | 0.33 | 3.32 | 3.03 |
| 21-Nov-27 | 2.75 | 31,400 | 3.32 | 0.28 | 0.31 | 3.32 | 3.04 |
| 21-May-28 | 2.25 | 30,200 | 3.34 | 0.28 | 0.30 | 3.34 | 3.06 |
| 21-Nov-28 | 2.75 | 34,100 | 3.36 | 0.28 | 0.29 | 3.36 | 3.08 |
| 21-Apr-29 | 3.25 | 36,600 | 3.39 | 0.28 | 0.28 | 3.39 | 3.11 |
| 21-Nov-29 | 2.75 | 34,700 | 3.43 | 0.28 | 0.27 | 3.43 | 3.15 |
| 21-May-30 | 2.50 | 37,100 | 3.47 | 0.28 | 0.27 | 3.47 | 3.19 |
| 21-Dec-30 | 1.00 | 38,700 | 3.51 | 0.27 | 0.27 | 3.51 | 3.23 |
| 21-Jun-31 | 1.50 | 38,100 | 3.53 | 0.28 | 0.27 | 3.53 | 3.26 |
| 21-Nov-31 | 1.00 | 21,000 | 3.56 | 0.27 | 0.27 | 3.56 | 3.29 |
| 21-May-32 | 1.25 | 39,300 | 3.58 | 0.27 | 0.28 | 3.58 | 3.31 |
| 21-Nov-32 | 1.75 | 29,000 | 3.59 | 0.27 | 0.27 | 3.59 | 3.32 |
| 21-Apr-33 | 4.50 | 24,400 | 3.59 | 0.27 | 0.27 | 3.59 | 3.32 |
| 21-Nov-33 | 3.00 | 21,100 | 3.61 | 0.27 | 0.27 | 3.61 | 3.35 |
| 21-May-34 | 3.75 | 17,400 | 3.63 | 0.26 | 0.26 | 3.63 | 3.37 |
| 21-Dec-34 | 3.50 | 14,000 | 3.67 | 0.27 | 3.67 | 3.67 | 3.41 |
| 21-Jun-35 | 2.75 | 11,550 | 3.71 | 0.26 | 0.26 | 3.71 | 3.45 |
| 21-Apr-37 | 3.75 | 12,300 | 3.83 | 0.24 | 0.26 | 3.83 | 3.59 |
| 21-Jun-39 | 3.25 | 10,300 | 3.95 | 0.24 | 0.27 | 3.95 | 3.71 |
| 21-May-41 | 2.75 | 13,800 | 4.03 | 0.23 | 0.27 | 4.03 | 3.80 |
| 21-Mar-47 | 3.00 | 14,200 | 4.11 | 0.23 | 0.28 | 4.11 | 3.95 |
| 21-Jun-51 | 1.75 | 19,000 | 4.11 | 0.23 | 0.28 | 4.11 | 3.89 |