Summary: Bond yields higher in Australia; ACGB 10-year spread to US Treasury yield rises from -8bps to +6bps; 10-year bond yields up in US, most major European markets; no bonds, notes issued by AOFM.
Locally, long-term ACGB yields rose each day of the shortened week, ignoring any falls in US markets. By the end of the week, the 3-year ACGB yield had gained 21bps to 3.22%, the 10-year yield had added 17bps to 3.57% while the 20-year yield finished 13bps higher at 3.94%. The spread between US and Australian 10-year Treasury bond yields “widened” from -8bps to +6bps.
Over in the US, 10-year bond yields started its week with a moderate rise which was followed a couple of days of falls. Yields then increased over the remaining two days of the week.
S&P Global Market Intelligence’s latest flash reading of its composite index was released on Tuesday (US time), with the index rising from December’s final reading of 45.0 to 46.6. The manufacturing index increased from 46.2 to 46.8 and the services index added 1.9 points to 46.6. S&P Global’s Chris Williamson said, “Although moderating compared to December, the rate of decline is among the steepest seen since the global financial crisis, reflecting falling activity across both manufacturing and services.”
December quarter GDP figures were released on Thursday. The US economy expanded at a pace slightly faster than expected, largely the result of increased private consumption and government expenditures.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by 0.3% in December and by 4.4% on annual basis, down from 4.7% in November.
The Atlanta Fed’s Nowcast model was also updated. The March quarter GDP growth estimate was initiated at 0.7% annualised, or a 0.2% expansion over the quarter.
By this point, the US 2-year Treasury bond yield had returned to its starting point at 4.19%, the 10-year yield had added 3bps to 3.51% while the 30-year yield finished 3bps lower at 3.62%.
In major euro-zone markets, 10-year bond yields again followed a vaguely similar path to their US counterpart.
S&P Global Market Intelligence released its January flash PMI figures for the euro-zone some hours before the US figures on Tuesday. The preliminary reading of the composite index was 50.2, up from December’s final reading of 49.3. S&P Global’s Chris Williamson said, “The survey suggests that a nadir was reached back in October, since when fears over the energy market in particular have been alleviated by falling prices, helped by the warmer than usual weather and generous government assistance.”
Germany’s ifo Institute released the January reading of its business climate index the next day. The index increased as a result of what ifo’s president described as “considerably less pessimistic expectations”. German firms’ views of current conditions deteriorated a little while the short-term outlook improved moderately.
By the end of the week, the German 10-year bund yield had gained 7bps to 2.24% while the French 10-year OAT yield had added 9bps to 2.70%. The Italian 10-year BTP yield increased by 13bps over the week to 4.10% while the British 10-year gilt yield finished 5bps lower at 3.32%.
The AOFM did not hold any bond tenders nor Treasury note tenders during the week.
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 $46.60 billion. There are currently $824.85 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 $29.00 billion of short-term Treasury notes currently outstanding after $5.50 billion matured on Friday.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-23 | 5.5 | 34,200 | 3.28 | 0.11 | 0.12 | 3.28 | 3.18 |
| 21-Apr-24 | 2.75 | 35,900 | 3.25 | 0.22 | 0.05 | 3.25 | 3.06 |
| 21-Nov-24 | 0.25 | 41,300 | 3.18 | 0.20 | -0.05 | 3.18 | 3.01 |
| 21-Apr-25 | 3.25 | 41,500 | 3.14 | 0.22 | -0.11 | 3.14 | 2.97 |
| 21-Nov-25 | 0.25 | 38,700 | 3.19 | 0.21 | -0.09 | 3.19 | 3.02 |
| 21-Apr-26 | 4.25 | 38,100 | 3.21 | 0.21 | -0.11 | 3.21 | 3.04 |
| 21-Sep-26 | 0.5 | 37,300 | 3.23 | 0.21 | -0.11 | 3.23 | 3.07 |
| 21-Apr-27 | 4.75 | 36,700 | 3.25 | 0.21 | -0.13 | 3.25 | 3.09 |
| 21-Nov-27 | 2.75 | 31,400 | 3.28 | 0.21 | -0.15 | 3.28 | 3.12 |
| 21-May-28 | 2.25 | 29,700 | 3.31 | 0.20 | -0.17 | 3.31 | 3.15 |
| 21-Nov-28 | 2.75 | 34,100 | 3.34 | 0.20 | -0.19 | 3.34 | 3.19 |
| 21-Apr-29 | 3.25 | 34,500 | 3.36 | 0.19 | -0.20 | 3.36 | 3.22 |
| 21-Nov-29 | 2.75 | 34,100 | 3.41 | 0.18 | -0.21 | 3.41 | 3.27 |
| 21-May-30 | 2.5 | 37,100 | 3.44 | 0.18 | -0.22 | 3.44 | 3.31 |
| 21-Dec-30 | 1 | 38,700 | 3.49 | 0.17 | -0.23 | 3.49 | 3.37 |
| 21-Jun-31 | 1.5 | 38,100 | 3.51 | 0.17 | -0.23 | 3.51 | 3.40 |
| 21-Nov-31 | 1 | 21,000 | 3.53 | 0.17 | -0.24 | 3.53 | 3.42 |
| 21-May-32 | 1.25 | 39,300 | 3.54 | 0.16 | -0.24 | 3.54 | 3.43 |
| 21-Nov-32 | 1.75 | 27,800 | 3.56 | 0.16 | -0.24 | 3.56 | 3.45 |
| 21-Apr-33 | 4.5 | 22,900 | 3.56 | 0.16 | -0.24 | 3.56 | 3.45 |
| 21-Nov-33 | 3 | 19,400 | 3.59 | 0.17 | -0.24 | 3.59 | 3.48 |
| 21-Jun-35 | 2.75 | 9,550 | 3.70 | 0.17 | -0.25 | 3.70 | 3.59 |
| 21-Apr-37 | 3.75 | 12,300 | 3.79 | 0.15 | -0.26 | 3.79 | 3.69 |
| 21-Jun-39 | 3.25 | 10,300 | 3.88 | 0.15 | -0.24 | 3.88 | 3.79 |
| 21-May-41 | 2.75 | 13,500 | 3.94 | 0.14 | -0.23 | 3.94 | 3.87 |
| 21-Mar-47 | 3 | 13,900 | 3.97 | 0.12 | -0.23 | 3.97 | 3.91 |
| 21-Jun-51 | 1.75 | 18,700 | 3.93 | 0.12 | -0.21 | 3.93 | 3.86 |