Summary: Bond yields lower in Australia; ACGB 10-year spread to US Treasury yield falls from +6bps to -13bps; 10-year bond yields up in US, down in major European markets; $4 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields did not vary much up or down until the very end of the week when they fell away considerably. By this point, the 3-year ACGB yield had shed 21bps to 3.01%, the 10-year yield had lost 18bps to 3.39% while the 20-year yield finished 12bps lower at 3.82%. The spread between US and Australian 10-year Treasury bond yields “tightened” from +6bps to -13bps.
Over in the US, 10-year bond yields started its week with a modest rise which was followed by several days of falls. Yields then bounced at the end of the week.
The Conference Board’s January reading of its Consumer Sentiment Index was released on Tuesday. The index slipped but still remained above its long-term average.
The ISM’s October Manufacturing PMI report was released a day later. This latest reading of the index fell again, further into contractionary territory.
December’s JOLTS report came out at about the same time and it indicated the US quit rate remained steady at 2.7%. Quits declined while separations and openings both increased.
The FOMC’s two-day meeting ended on Wednesday and 25bps increase to its target range for the federal funds rate was announced.
The Atlanta Fed’s Nowcast model was also updated. The March quarter GDP growth estimate remained at 0.7% annualised, or a 0.2% expansion over the quarter.
At the end of the week, January’s non-farm payrolls report produced another rise in employment which exceeded expectations. The jobless rate declined from 3.5% to 3.4% and the participation rate ticked up to 62.4%.
By this point, the US 2-year Treasury bond yield had gained 11bps to 4.30%, the 10-year yield had added 1bp to 3.52% while the 30-year yield finished unchanged at 3.62%.
In major euro-zone markets, 10-year bond yields again followed a vaguely similar path to their US counterpart, although euro-zone yields fell especially heavily on Thursday.
The latest euro-zone’s Economic Sentiment Indicator (ESI) was released at the very start of the week. It posted another rise and returned to long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-January growth rate of 1.5%, up from 0.8%.
December quarter GDP figures were released the next day. The euro-zone economy expanded by just 0.1%, better than expected. The annual growth rate slowed from 2.3% to 1.9%.
The “flash” January consumer price index (CPI) report was released midweek. It produced an annual inflation rate of 8.5% in the euro-zone, lower than the expected 8.9% as well as December’s final reading of 9.2%. Core annual CPI remained steady at 5.2%.
The Governing Council of the ECB held its February policy meeting on Thursday. As expected, the ECB raised its three policy rates, all by 50bps.
The BoE also announced a 50bps rise of its Bank Rate on Thursday night, taking the rate at which the BoE pays on commercial bank’s deposits with it to 4.00%.
By the end of the week, the German 10-year bund yield had lost 5bps to 2.19% while the French 10-year OAT yield had shed 6bps to 2.64%. The Italian 10-year BTP yield decreased by 7bps over the week to 4.03% while the British 10-year gilt yield finished 27bps lower at 3.05%.
The AOFM held three bond tenders during the week. $300 million of May 2041s, $700 million of May 2034s and $500 million of April 2029s were priced at yields of 3.93%, 3.59% and 3.19% respectively. There were also three Treasury note tenders which raised a total of $2.5 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 $48.10 billion. There are currently $826.35 billion of Treasury bonds and $38.236 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 $31.50 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-23 | 5.5 | 34,200 | 3.27 | 0.00 | 0.11 | 3.29 | 3.26 |
| 21-Apr-24 | 2.75 | 35,900 | 3.18 | -0.06 | -0.02 | 3.25 | 3.18 |
| 21-Nov-24 | 0.25 | 41,300 | 3.07 | -0.11 | -0.16 | 3.19 | 3.07 |
| 21-Apr-25 | 3.25 | 41,500 | 2.99 | -0.16 | -0.26 | 3.14 | 2.99 |
| 21-Nov-25 | 0.25 | 38,700 | 2.98 | -0.20 | -0.30 | 3.17 | 2.98 |
| 21-Apr-26 | 4.25 | 38,100 | 3.01 | -0.20 | -0.31 | 3.20 | 3.01 |
| 21-Sep-26 | 0.5 | 37,300 | 3.03 | -0.20 | -0.32 | 3.23 | 3.03 |
| 21-Apr-27 | 4.75 | 36,700 | 3.06 | -0.20 | -0.33 | 3.25 | 3.06 |
| 21-Nov-27 | 2.75 | 31,400 | 3.08 | -0.20 | -0.35 | 3.29 | 3.08 |
| 21-May-28 | 2.25 | 29,700 | 3.11 | -0.20 | -0.37 | 3.31 | 3.11 |
| 21-Nov-28 | 2.75 | 34,100 | 3.14 | -0.20 | -0.38 | 3.34 | 3.14 |
| 21-Apr-29 | 3.25 | 34,500 | 3.18 | -0.19 | -0.39 | 3.37 | 3.18 |
| 21-Nov-29 | 2.75 | 34,100 | 3.22 | -0.19 | -0.40 | 3.41 | 3.22 |
| 21-May-30 | 2.5 | 37,100 | 3.26 | -0.18 | -0.41 | 3.45 | 3.26 |
| 21-Dec-30 | 1 | 38,700 | 3.31 | -0.18 | -0.41 | 3.50 | 3.31 |
| 21-Jun-31 | 1.5 | 38,100 | 3.34 | -0.18 | -0.41 | 3.52 | 3.34 |
| 21-Nov-31 | 1 | 21,000 | 3.36 | -0.18 | -0.41 | 3.55 | 3.36 |
| 21-May-32 | 1.25 | 39,300 | 3.37 | -0.18 | -0.41 | 3.55 | 3.37 |
| 21-Nov-32 | 1.75 | 27,800 | 3.38 | -0.18 | -0.42 | 3.57 | 3.38 |
| 21-Apr-33 | 4.5 | 22,900 | 3.38 | -0.18 | -0.42 | 3.57 | 3.38 |
| 21-Nov-33 | 3 | 19,400 | 3.42 | -0.18 | -0.42 | 3.60 | 3.42 |
| 21-Jun-35 | 2.75 | 9,550 | 3.53 | -0.17 | -0.43 | 3.71 | 3.53 |
| 21-Apr-37 | 3.75 | 12,300 | 3.64 | -0.15 | -0.41 | 3.81 | 3.64 |
| 21-Jun-39 | 3.25 | 10,300 | 3.74 | -0.14 | -0.38 | 3.91 | 3.74 |
| 21-May-41 | 2.75 | 13,500 | 3.82 | -0.13 | -0.36 | 3.97 | 3.82 |
| 21-Mar-47 | 3 | 13,900 | 3.85 | -0.12 | -0.34 | 4.00 | 3.85 |
| 21-Jun-51 | 1.75 | 18,700 | 3.81 | -0.12 | -0.33 | 3.96 | 3.81 |