Summary: Bond yields higher in Australia; ACGB 10-year spread to US Treasury yield widens from +2bps to +13bps; 10-year bond yields up in US, most major European markets; AOFM issues $3.6 billion worth of bonds, notes.
Locally, long-term ACGB yields rose through most of the week except for a partial pullback after a sharp rise on Tuesday. By the end of the week, the 3-year ACGB yield had gained 12bps to 3.62%, the 10-year yield had added 16bps to 4.03% while the 20-year yield finished 19bps higher at 4.31%. The spread between US and Australian 10-year Treasury bond yields widneded from +2bps to +13bps.
Over in the US, 10-year bond yields rose for the first two days of the week before generally easing back over the remainder of the week.
There weren’t any particularly notable reports or events until Wednesday when September producer price indices were released. Producer prices increased by 0.4% over the month and by 8.5% over the year.
The minutes of the Fed’s September FOMC meeting were published that afternoon. The minutes did nothing to turn expectations away from another 75bps rise at the next meeting.
September’s CPI report was released on Thursday night (AEDT) and it revealed a higher-than-expected 0.4% increase. The annual inflation rate remained at 8.2% but the core inflation rate increased from 6.3% to 6.7%.
One of the two major measures of US consumer sentiment, the University of Michigan’s Consumer sentiment index was published at the end of the week. The index improved a little further again, rising from September’s final reading of 58.6 to 59.8, still well below its long-term average.
September’s retail sales report was released at about the same time and it indicated total sales remained unchangedover the month, less than the expected 0.2% increase. Lower fuel sales had the largest single effect on the total.
The Atlanta Fed’s Nowcast model was also updated. The September quarter GDP growth estimate was lowered to 2.8% annualised, or a 0.7% expansion over the quarter.
By this point, the US 2-year Treasury bond yield had gained 14bps to 4.42%, the 10-year yield had added 5bps to 3.90% while the 30-year yield finished 7bps higher at 3.88%.
In major euro-zone markets, 10-year bond yields followed similar paths to their US counterpart until the end of the week when yields dropped significantly.
There was little of note in terms of economic reports except for the latest induction production figures released midweek. Output expanded by 1.5% in August, slightly more than expected and in contrast with July’s 2.3% slump.
By the end of the week, German 10-year bund and French 10-year OAT yields had both added 3bps to 2.17% and 2.77% respectively. The Italian 10-year BTP yield returned to its starting point at 4.57% while the British 10-year gilt yield finished 28bps lower at 3.94%.
The AOFM held two vanilla bond tenders and one index-linked bond (ILB) tender during the week. $800 million of November 2032s and $700 million of April 2027s were priced at yields of 4.00% and 3.67% respectively while the $100 million of August 2040 ILBs were priced at a real yield of 1.97%. There were also three Treasury note tenders which raised a total of $2.0 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 $22.35 billion. There are currently $827.55 billion of Treasury bonds and $37.786 billion of Treasury index-linked bonds on issue. The next series to mature does so on 21 November when $26.50 billion worth of bonds are due. There are also $27.00 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.691 | 0.05 | 0.24 | 2.69 | 2.65 |
| 21-Apr-23 | 5.50 | 34,200 | 3.063 | 0.12 | 0.25 | 3.06 | 2.93 |
| 21-Apr-24 | 2.75 | 35,900 | 3.175 | 0.10 | 0.25 | 3.18 | 3.08 |
| 21-Nov-24 | 0.25 | 41,300 | 3.39 | 0.12 | 0.34 | 3.39 | 3.26 |
| 21-Apr-25 | 3.25 | 40,100 | 3.462 | 0.12 | 0.34 | 3.46 | 3.34 |
| 21-Nov-25 | 0.25 | 38,000 | 3.544 | 0.12 | 0.37 | 3.54 | 3.43 |
| 21-Apr-26 | 4.25 | 38,100 | 3.576 | 0.12 | 0.39 | 3.58 | 3.46 |
| 21-Sep-26 | 0.50 | 36,700 | 3.619 | 0.12 | 0.40 | 3.62 | 3.50 |
| 21-Apr-27 | 4.75 | 36,700 | 3.643 | 0.12 | 0.40 | 3.65 | 3.53 |
| 21-Nov-27 | 2.75 | 31,400 | 3.699 | 0.13 | 0.41 | 3.71 | 3.58 |
| 21-May-28 | 2.25 | 29,700 | 3.747 | 0.13 | 0.43 | 3.77 | 3.63 |
| 21-Nov-28 | 2.75 | 33,300 | 3.789 | 0.14 | 0.44 | 3.80 | 3.66 |
| 21-Apr-29 | 3.25 | 33,700 | 3.818 | 0.14 | 0.43 | 3.84 | 3.69 |
| 21-Nov-29 | 2.75 | 33,400 | 3.866 | 0.15 | 0.44 | 3.88 | 3.73 |
| 21-May-30 | 2.50 | 37,100 | 3.906 | 0.15 | 0.44 | 3.93 | 3.77 |
| 21-Dec-30 | 1.00 | 38,700 | 3.95 | 0.15 | 0.44 | 3.98 | 3.82 |
| 21-Jun-31 | 1.50 | 38,100 | 3.973 | 0.15 | 0.44 | 4.00 | 3.84 |
| 21-Nov-31 | 1.00 | 21,000 | 3.989 | 0.16 | 0.44 | 4.02 | 3.85 |
| 21-May-32 | 1.25 | 38,400 | 3.992 | 0.16 | 0.43 | 4.02 | 3.85 |
| 21-Nov-32 | 1.75 | 27,000 | 4.007 | 0.16 | 0.43 | 4.04 | 3.87 |
| 21-Apr-33 | 4.50 | 22,200 | 4.009 | 0.16 | 0.43 | 4.04 | 3.87 |
| 21-Nov-22 | 3.00 | 17,600 | 4.048 | 0.16 | 0.44 | 4.08 | 3.91 |
| 21-Jun-35 | 2.75 | 9,550 | 4.145 | 0.17 | 0.44 | 4.17 | 4.00 |
| 21-Apr-37 | 3.75 | 12,300 | 4.22 | 0.18 | 0.45 | 4.24 | 4.07 |
| 21-Jun-39 | 3.25 | 10,300 | 4.285 | 0.19 | 0.45 | 4.31 | 4.13 |
| 21-May-41 | 2.75 | 13,500 | 4.318 | 0.19 | 0.45 | 4.34 | 4.16 |
| 21-Mar-47 | 3.00 | 13,600 | 4.308 | 0.19 | 0.44 | 4.33 | 4.25 |
| 21-Jun-51 | 1.75 | 18,400 | 4.268 | 0.20 | 0.44 | 4.29 | 4.10 |