Summary: Bond yields lower in Australia; ACGB 10-year spread to US Treasury yield narrows from +25bps to +21bps; 10-year bond yields up in US, major European markets; AOFM issues $4.1 billion worth of bonds, notes.
Locally, long-term ACGB yields increased over the first three days of the week before dropping significantly on Thursday and then falling again on Friday. By this point, the 3-year ACGB yield had lost 5bps to 3.67%, the 10-year yield had shed 2bps to 3.92% while the 20-year yield finished 3bps lower at 4.13%. The spread between US and Australian 10-year Treasury bond yields narrowed from +25bps to +21bps.
Over in the US, 10-year bond yields rose over the first three days of the week before partially falling back on Thursday and Friday.
The Conference Board’s September reading of its Consumer Sentiment Index was released on Tuesday. The index improved for a second consecutive month as fuel prices fell back and the US employment market remained strong.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by 0.6% in August and by 4.9% on annual basis, up from July’s revised rate of 4.7%.
The Atlanta Fed’s Nowcast model was also updated. The September quarter GDP growth estimate was raised to 2.4% annualised, or a 0.6% expansion over the quarter, on the back of higher personal consumption expenditures, net exports and investment figures from August.
By this point, the US 2-year Treasury bond yield had shed 6bps to 4.15%, the 10-year yield had added 2bps to 3.71% while the 30-year yield finished 5bps higher at 3.66%.
In major euro-zone markets, 10-year bond yields followed a similar path to their US counterpart except Wednesday’s rises were noticeably greater.
Germany’s ifo Institute released the September reading of its business climate index at the start of the week. The index fell again, fuelling expectations the Germany economy is “slipping into recession”. German firms’ views of current conditions and the short-term outlook both deteriorated again.
The BoE announced it would buy gilts with maturities of 20 years and longer on Wednesday in response to a disorderly market. The gilt market had been hit by near-panic selling early in the week and the move is to ostensibly to bring back some order. The BoE’s bond selling programme, announced in the previous week, has been deferred until the end of October.
The latest euro-zone’s Economic Sentiment Indicator (ESI) was released on Thursday night (AEST). It continued its slide in September, falling even further below the long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-September growth rate of zero, down from 0.8%.
The “flash” September consumer price index (CPI) report was released at the end of the week. It produced an annual inflation rate of 10.0% in the euro-zone, higher than the expected 9.7% as well as August’s final reading of 9.1%. Core annual CPI increased from 4.3% to 4.8%.
By this stage, the German 10-year bund yield had gained 10bps to 2.12% while the French 10-year OAT yield had added 12bps to 2.72%. The Italian 10-year BTP yield increased by 22bps to 4.57% over the week while the British 10-year gilt yield finished 21bps higher at 4.03%.
The AOFM held two vanilla bond tenders as well as an index-linked bond (ILB) tender during the week. $800 million of November 2033s and $700 million of November 2028s were priced at yields of 4.12% and 3.79% respectively while $100 million of November 2032 ILBs were priced at a real yield of 1.97%. There were also three Treasury note tenders which raised a total of $2.5 billion.
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 $19.25 billion. There are currently $824.55 billion of Treasury bonds and $37.686 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 $26.50 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH |
|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.88 | -0.03 | 0.52 |
| 21-Apr-23 | 5.50 | 34,200 | 3.20 | 0.02 | 0.40 |
| 21-Apr-24 | 2.75 | 35,900 | 3.30 | -0.08 | 0.29 |
| 21-Nov-24 | 0.25 | 41,300 | 3.46 | -0.06 | 0.30 |
| 21-Apr-25 | 3.25 | 40,100 | 3.53 | -0.06 | 0.30 |
| 21-Nov-25 | 0.25 | 37,300 | 3.59 | -0.06 | 0.26 |
| 21-Apr-26 | 4.25 | 38,100 | 3.62 | -0.04 | 0.32 |
| 21-Sep-26 | 0.50 | 36,700 | 3.65 | -0.03 | 0.27 |
| 21-Apr-27 | 4.75 | 36,000 | 3.66 | -0.03 | 0.32 |
| 21-Nov-27 | 2.75 | 31,400 | 3.70 | -0.02 | 0.31 |
| 21-May-28 | 2.25 | 29,700 | 3.72 | -0.04 | 0.31 |
| 21-Nov-28 | 2.75 | 33,300 | 3.74 | -0.03 | 0.30 |
| 21-Apr-29 | 3.25 | 33,700 | 3.76 | -0.03 | 0.30 |
| 21-Nov-29 | 2.75 | 33,400 | 3.80 | -0.02 | 0.31 |
| 21-May-30 | 2.50 | 37,100 | 3.83 | -0.02 | 0.31 |
| 21-Dec-30 | 1.00 | 38,700 | 3.86 | -0.02 | 0.23 |
| 21-Jun-31 | 1.50 | 38,100 | 3.88 | -0.02 | 0.23 |
| 21-Nov-31 | 1.00 | 21,000 | 3.88 | -0.02 | 0.22 |
| 21-May-32 | 1.25 | 37,600 | 3.88 | -0.03 | 0.21 |
| 21-Nov-32 | 1.75 | 26,200 | 3.90 | -0.03 | 0.21 |
| 21-Apr-33 | 4.50 | 22,200 | 3.90 | -0.03 | 0.20 |
| 21-Nov-22 | 3.00 | 17,600 | 3.92 | -0.03 | 0.20 |
| 21-Jun-35 | 2.75 | 9,550 | 4.01 | -0.03 | 0.27 |
| 21-Apr-37 | 3.75 | 12,300 | 4.06 | -0.03 | 0.25 |
| 21-Jun-39 | 3.25 | 10,300 | 4.11 | -0.02 | 0.24 |
| 21-May-41 | 2.75 | 13,500 | 4.14 | -0.02 | 0.22 |
| 21-Mar-47 | 3.00 | 13,600 | 4.13 | -0.02 | 0.20 |
| 21-Jun-51 | 1.75 | 18,400 | 4.08 | -0.03 | 0.17 |