Summary: 10-year bond yields up in Australia; ACGB 10-year spread to US Treasury yield rises from 12bps to -5bps; 10-year bond yields basically steady in the US, up in major European markets; $4.6 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields started the week with a moderate rise which was then followed by falls over the next two days. The final two days brought moderate rises. By the end of the week, the 3-year ACGB yield had added 3bps to 3.61%, the 10-year yield had gained 8bps to 3.91% while the 20-year yield finished 6bps higher at 4.22%. The spread between US and Australian 10-year Treasury bond yields “widened” from -12bps to -5bps.
Over in the US, 10-year bond yields started the week with a modest decline, steadied the next day, increased noticeably on Wednesday and Thursday before dropping significantly at the end of the week.
The Conference Board’s February reading of its Consumer Sentiment Index was released on Tuesday. The index slipped again but still remained above its long-term average.
The ISM’s January Manufacturing PMI report was released a day later. The latest reading of the PMI index crept up a little but remained in contractionary territory.
The Atlanta Fed’s Nowcast model was also updated. The March quarter GDP growth estimate was trimmed to 2.3% annualised, or a 0.6% expansion over the quarter.
The ISM’s February Services PMI came out at the end of the week. The index slipped from 55.2 to 55.1, above the generally expected figure of 54.5.
By this stage, the US 2-year Treasury bond yield had gained 7bps to 4.87%, the 10-year yield had added 1bp to 3.96% while the 30-year yield finished 5bps lower at 3.88%.
In major euro-zone markets, 10-year bond yields increased through the week until Friday when a pullback took place in continental markets.
The latest euro-zone’s Economic Sentiment Indicator (ESI) was released at the start of the week. The index slipped a touch in February but remained close to its long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-February growth rate of 1.3%, unchanged from January.
The “flash” February consumer price index (CPI) report was released on Thursday. It produced an annual inflation rate of 8.5% in the euro-zone, higher than the expected 8.3% but lower than January’s final reading of 8.6%. Core annual CPI increased from 5.3% to 5.6%.
By the end of the week, the German 10-year bond yield had gained 17bps to 2.71% while the French 10-year OAT yield had added 18bps to 3.19%. The Italian 10-year BTP yield increased by 10bps over the week to 4.53% while the British 10-year gilt yield finished 34bps higher at 3.99%.
The AOFM held two vanilla bond tenders as well as an index-linked bond (ILB) tender during the week. $300 million of March 2047s and $1.2 billion of November 2032s were priced at yields of 4.22% and 3.89% respectively, while the $100 million of November 2027 ILBs were priced at a real yield of 0.92%. There were also three Treasury note tenders which raised a total of $3.0 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 $54.35 billion. There are currently $832.35 billion of Treasury bonds and $38.486 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 $30.50 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-23 | 5.5 | 34200 | 3.59 | 0.06 | 0.31 | 3.59 | 3.54 |
| 21-Apr-24 | 2.75 | 35900 | 3.74 | 0.02 | 0.50 | 3.79 | 3.70 |
| 21-Nov-24 | 0.25 | 41300 | 3.65 | 0.05 | 0.48 | 3.68 | 3.57 |
| 21-Apr-25 | 3.25 | 41500 | 3.60 | 0.04 | 0.45 | 3.63 | 3.51 |
| 21-Nov-25 | 0.25 | 38700 | 3.59 | 0.04 | 0.40 | 3.62 | 3.50 |
| 21-Apr-26 | 4.25 | 38600 | 3.60 | 0.04 | 0.40 | 3.63 | 3.51 |
| 21-Sep-26 | 0.5 | 37300 | 3.62 | 0.03 | 0.39 | 3.66 | 3.54 |
| 21-Apr-27 | 4.75 | 36700 | 3.64 | 0.03 | 0.39 | 3.68 | 3.56 |
| 21-Nov-27 | 2.75 | 31400 | 3.66 | 0.04 | 0.38 | 3.69 | 3.57 |
| 21-May-28 | 2.25 | 30200 | 3.68 | 0.04 | 0.37 | 3.70 | 3.59 |
| 21-Nov-28 | 2.75 | 34100 | 3.70 | 0.04 | 0.37 | 3.72 | 3.61 |
| 21-Apr-29 | 3.25 | 35000 | 3.74 | 0.05 | 0.37 | 3.74 | 3.63 |
| 21-Nov-29 | 2.75 | 34700 | 3.77 | 0.06 | 0.36 | 3.77 | 3.67 |
| 21-May-30 | 2.5 | 37100 | 3.80 | 0.06 | 0.36 | 3.80 | 3.69 |
| 21-Dec-30 | 1 | 38700 | 3.84 | 0.06 | 0.35 | 3.84 | 3.73 |
| 21-Jun-31 | 1.5 | 38100 | 3.86 | 0.07 | 0.35 | 3.86 | 3.75 |
| 21-Nov-31 | 1 | 21000 | 3.88 | 0.07 | 0.35 | 3.88 | 3.77 |
| 21-May-32 | 1.25 | 39300 | 3.89 | 0.08 | 0.34 | 3.89 | 3.77 |
| 21-Nov-32 | 1.75 | 29000 | 3.90 | 0.08 | 0.35 | 3.90 | 3.79 |
| 21-Apr-33 | 4.5 | 23600 | 3.90 | 0.08 | 0.34 | 3.90 | 3.78 |
| 21-Nov-33 | 3 | 20400 | 3.93 | 0.07 | 0.34 | 3.93 | 3.81 |
| 21-May-34 | 3.75 | 15600 | 3.95 | 0.07 | 0.34 | 3.95 | 3.83 |
| 21-Jun-35 | 2.75 | 9550 | 4.03 | 0.07 | 0.33 | 4.03 | 3.91 |
| 21-Apr-37 | 3.75 | 12300 | 4.10 | 0.06 | 0.31 | 4.10 | 4.00 |
| 21-Jun-39 | 3.25 | 10300 | 4.17 | 0.06 | 0.29 | 4.17 | 4.08 |
| 21-May-41 | 2.75 | 13800 | 4.22 | 0.06 | 0.28 | 4.22 | 4.13 |
| 21-Mar-47 | 3 | 14200 | 4.25 | 0.06 | 0.28 | 4.25 | 4.16 |
| 21-Jun-51 | 1.75 | 19000 | 4.20 | 0.06 | 0.27 | 4.20 | 4.11 |