Summary: 10-year bond yield up a touch in Australia; ACGB 10-year spread to US Treasury yield falls from -12bps to -14bps; 10-year bond yields up modestly in US, UK, down in major European markets; $1.95 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields increased over the first two days of the week before pausing midweek and then falling back over the next two days, thus finishing almost steady at the end of the week. By this point, the 3-year ACGB yield had gained 6bps to 3.00%, the 10-year yield had added 1bp to 3.33% while the 20-year yield finished unchanged at 3.80%. The spread between US and Australian 10-year Treasury bond yields “tightened” from -12bps to -14bps.
Over in the US, 10-year bond yields started the week with a noticeable rise which was followed by a smaller one the next day. Yields dropped back midweek and continued to fall on Thursday before bouncing at the end of the week.
The Atlanta Fed’s Nowcast model was updated on Tuesday. Its June quarter GDP growth estimate remained unchanged at 2.7% annualised, or a 0.7% expansion over the quarter.
April’s CPI report was released midweek (US time) and it produced a 0.4% increase, in line with expectations. The annual inflation rate remained steady at 5.0% while the core inflation rate ticked down from 5.6% to 5.5%.
April producer price indices were released the next day. The index increased by 0.2% over the month, less than expected, and the annual growth rate fell back from 2.8% to 2.4%.
At the end of the week, the University of Michigan’s Consumer sentiment index fell in May, well below its long-term average and not all that far from its series low.
By this point, the US 2-year Treasury bond yield had gained 9bps to 3.99%, the 10-year yield had added 3bps to 3.46% while the 30-year yield finished 4bps higher at 3.79%.
In major euro-zone markets, 10-year bond yields took a similar path to US Treasury bonds.
On Thursday night, the Bank of England raised its Bank Rate 25bps to 4.50%, as widely expected.
By the end of the week, the German 10-year bond yield had lost 2bps to 2.27% while the French 10-year OAT yield had shed 4bps to 2.84%. The Italian 10-year BTP yield decreased by 3bps over the week to 4.17% while the British 10-year gilt yield finished 1bp higher at 3.91%.
The AOFM held one index-linked bond (ILB) tender as well as a vanilla bond tender during the week. $150 million of November 2027 ILBs were priced at a real yield of 0.52% while $800 million of April 2033s were priced at a yield of 3.22%. There was also a Treasury note tender which raised $1 billion on a short-term basis.
Following the release of the Commonwealth Budget on Tuesday night, the AOFM announced its 2022/23 issuance programme on Wednesday. It expects to issue around $75 billion of bonds and between $2 billion and $4 billion of ILBs over the coming financial year, roughly the same amount as bonds maturing in that year.
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 $76.55 billion. There are currently $819.85 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 $36.5 billion of short-term Treasury notes currently outstanding after $3.5 billion matured on Friday.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 3.46 | -0.06 | #N/A | 3.60 | 3.46 |
| 21-Nov-24 | 0.25 | 41,300 | 3.29 | 0.07 | #N/A | 3.38 | 3.29 |
| 21-Apr-25 | 3.25 | 41,500 | 3.16 | 0.08 | #N/A | 3.25 | 3.16 |
| 21-Nov-25 | 0.25 | 39,200 | 3.03 | 0.07 | #N/A | 3.13 | 3.03 |
| 21-Apr-26 | 4.25 | 39,100 | 3.02 | 0.06 | #N/A | 3.12 | 3.02 |
| 21-Sep-26 | 0.50 | 37,800 | 3.02 | 0.04 | #N/A | 3.12 | 3.02 |
| 21-Apr-27 | 4.75 | 36,700 | 3.03 | 0.05 | #N/A | 3.14 | 3.03 |
| 21-Nov-27 | 2.75 | 31,400 | 3.04 | 0.04 | #N/A | 3.16 | 3.04 |
| 21-May-28 | 2.25 | 30,200 | 3.06 | 0.04 | #N/A | 3.18 | 3.06 |
| 21-Nov-28 | 2.75 | 34,100 | 3.08 | 0.03 | #N/A | 3.20 | 3.08 |
| 21-Apr-29 | 3.25 | 36,600 | 3.11 | 0.02 | #N/A | 3.23 | 3.11 |
| 21-Nov-29 | 2.75 | 34,700 | 3.15 | 0.01 | #N/A | 3.28 | 3.15 |
| 21-May-30 | 2.50 | 37,100 | 3.19 | 0.01 | #N/A | 3.32 | 3.19 |
| 21-Dec-30 | 1.00 | 38,700 | 3.23 | 0.01 | #N/A | 3.36 | 3.23 |
| 21-Jun-31 | 1.50 | 38,100 | 3.26 | 0.00 | #N/A | 3.39 | 3.26 |
| 21-Nov-31 | 1.00 | 21,000 | 3.29 | 0.00 | #N/A | 3.42 | 3.29 |
| 21-May-32 | 1.25 | 39,300 | 3.31 | 0.00 | #N/A | 3.44 | 3.31 |
| 21-Nov-32 | 1.75 | 29,000 | 3.32 | 0.01 | #N/A | 3.45 | 3.32 |
| 21-Apr-33 | 4.50 | 24,400 | 3.32 | 0.00 | #N/A | 3.45 | 3.32 |
| 21-Nov-33 | 3.00 | 21,100 | 3.35 | 0.00 | #N/A | 3.48 | 3.35 |
| 21-May-34 | 3.75 | 17,400 | 3.37 | 0.00 | #N/A | 3.50 | 3.37 |
| 21-Dec-34 | 3.50 | 14,000 | 3.41 | 0.00 | #N/A | 3.54 | 3.41 |
| 21-Jun-35 | 2.75 | 10,850 | 3.45 | 0.01 | #N/A | 3.58 | 3.45 |
| 21-Apr-37 | 3.75 | 12,300 | 3.59 | 0.00 | #N/A | 3.71 | 3.59 |
| 21-Jun-39 | 3.25 | 10,300 | 3.71 | 0.00 | #N/A | 3.83 | 3.71 |
| 21-May-41 | 2.75 | 13,800 | 3.80 | 0.00 | #N/A | 3.91 | 3.80 |
| 21-Mar-47 | 3.00 | 14,200 | 3.87 | 0.02 | #N/A | 3.98 | 3.87 |
| 21-Jun-51 | 1.75 | 19,000 | 3.89 | 0.01 | #N/A | 3.99 | 3.89 |