Summary: 10-year bond yields down in Australia; ACGB 10-year spread to US Treasury yield rises from -11bps to -3bps; 10-year bond yields down in US, major European markets; $3.6 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields started the week with a moderate fall which set the tone for much of the week. By the end of the week, the 3-year ACGB yield had shed 34bps to 2.99%, the 10-year yield had lost 19bps to 3.40% while the 20-year yield finished 12bps lower at 3.85%. The spread between US and Australian 10-year Treasury bond yields “widened” from -11bps to -3bps.
Over in the US, 10-year bond yields started the week with a substantial fall which was reversed the next day. Yields continued in this yo-yo fashion until the end of the week.
February’s CPI report was released on Tuesday night (AEDT) and it produced a 0.4% increase, in line with expectations. The annual inflation rate slowed from 6.3% to 6.0% while the core inflation rate remained steady at 5.5%.
February producer price indices were released the next day. The index decreased by 0.1% over the month, which contrasted with the expected 0.3% rise, and rose by 4.6% over the year.
February’s retail sales report was also released and it indicated total sales had fallen by 0.4% over the month, contrasting with the expected 0.2% increase. Vehicle sales and takeaway food and beverage sales again both had the largest effects on the overall result.
The Atlanta Fed’s Nowcast model was updated on Thursday. The March quarter GDP growth estimate was raised to 3.2% annualised, or a 0.8% expansion over the quarter.
A raft of data releases came out at the end of the week.
Industrial production remained steady in February, less than the expected 0.2% increase. This latest reading implied an annual GDP growth rate of 1.8%.
The Conference Board’s February reading of its Leading Index printed another 0.3% fall, slightly worse than expected.
The University of Michigan’s Consumer sentiment index fell back after a couple of months of increases. The index remains well below its long-term average.
By this point, the US 2-year Treasury bond yield had dropped by 77bps to 3.82%, the 10-year yield had lost 27bps to 3.43% while the 30-year yield finished 8bps lower at 3.63%.
In major euro-zone markets, 10-year bond yields followed a very similar path to their US counterpart.
The euro-zone’s January industrial production figures were released midweek. Output expanded by 0.7% in January, better than expected, in contrast to December’s 1.3% contraction.
The ECB Governing Council met the next day and raised its various policy rates 50bps each.
By the end of the week, the German 10-year bond yield had shed 39bps to 2.11% while the French 10-year OAT yield had lost 31bps to 2.69%. The Italian 10-year BTP yield decreased by 26bps over the week to 4.05% while the British 10-year gilt yield finished 34bps lower at 3.43%.
The AOFM held one vanilla bond tender as well an index-linked tender during the week. $1 billion of May 2034s were priced at a yield of 3.47% while $100 million of August 2040 ILBs were priced at a real yield of 1.43%. There were also three Treasury note tenders which raised a total of $2 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 $56.45 billion. There are currently $834.35 billion of Treasury bonds and $38.586 billion of Treasury index-linked bonds on issue. The next series to mature does so on 21 April 2023 when $34.20 billion worth of bonds are due. There are also $31.5 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-23 | 5.50 | 34,200 | 3.47 | -0.13 | -0.04 | 3.55 | 3.45 |
| 21-Apr-24 | 2.75 | 35,900 | 3.24 | -0.31 | -0.39 | 3.50 | 3.06 |
| 21-Nov-24 | 0.25 | 41,300 | 3.12 | -0.33 | -0.43 | 3.36 | 2.95 |
| 21-Apr-25 | 3.25 | 41,500 | 3.03 | -0.34 | -0.46 | 3.25 | 2.86 |
| 21-Nov-25 | 0.25 | 38,700 | 2.99 | -0.33 | -0.49 | 3.20 | 2.83 |
| 21-Apr-26 | 4.25 | 38,600 | 3.02 | -0.32 | -0.48 | 3.21 | 2.86 |
| 21-Sep-26 | 0.50 | 37,800 | 3.04 | -0.32 | -0.48 | 3.23 | 2.89 |
| 21-Apr-27 | 4.75 | 36,700 | 3.07 | -0.30 | -0.47 | 3.25 | 2.92 |
| 21-Nov-27 | 2.75 | 31,400 | 3.10 | -0.28 | -0.47 | 3.26 | 2.96 |
| 21-May-28 | 2.25 | 30,200 | 3.13 | -0.27 | -0.46 | 3.28 | 3.00 |
| 21-Nov-28 | 2.75 | 34,100 | 3.16 | -0.25 | -0.45 | 3.30 | 3.04 |
| 21-Apr-29 | 3.25 | 35,000 | 3.20 | -0.23 | -0.45 | 3.33 | 3.10 |
| 21-Nov-29 | 2.75 | 34,700 | 3.24 | -0.22 | -0.45 | 3.38 | 3.14 |
| 21-May-30 | 2.50 | 37,100 | 3.28 | -0.21 | -0.44 | 3.41 | 3.19 |
| 21-Dec-30 | 1.00 | 38,700 | 3.32 | -0.21 | -0.44 | 3.45 | 3.24 |
| 21-Jun-31 | 1.50 | 38,100 | 3.34 | -0.20 | -0.44 | 3.48 | 3.27 |
| 21-Nov-31 | 1.00 | 21,000 | 3.37 | -0.20 | -0.43 | 3.50 | 3.30 |
| 21-May-32 | 1.25 | 39,300 | 3.38 | -0.19 | -0.43 | 3.51 | 3.31 |
| 21-Nov-32 | 1.75 | 29,000 | 3.39 | -0.19 | -0.43 | 3.52 | 3.33 |
| 21-Apr-33 | 4.50 | 23,600 | 3.39 | -0.19 | -0.43 | 3.52 | 3.33 |
| 21-Nov-33 | 3.00 | 20,400 | 3.42 | -0.19 | -0.43 | 3.54 | 3.36 |
| 21-May-34 | 3.75 | 16,600 | 3.44 | -0.18 | -0.43 | 3.56 | 3.38 |
| 21-Jun-35 | 2.75 | 10,050 | 3.54 | -0.17 | -0.42 | 3.65 | 3.48 |
| 21-Apr-37 | 3.75 | 12,300 | 3.65 | -0.15 | -0.39 | 3.76 | 3.60 |
| 21-Jun-39 | 3.25 | 10,300 | 3.77 | -0.13 | -0.36 | 3.86 | 3.73 |
| 21-May-41 | 2.75 | 13,800 | 3.85 | -0.12 | -0.34 | 3.93 | 3.83 |
| 21-Mar-47 | 3.00 | 14,200 | 3.90 | -0.10 | -0.32 | 3.99 | 3.90 |
| 21-Jun-51 | 1.75 | 19,000 | 3.88 | -0.09 | -0.30 | 3.99 | 3.88 |