Summary: Bond yields higher in Australia; ACGB 10-year spread to US Treasury yield widens from +29bps to +31bps; 10-year bond yields up in US, major European markets; AOFM issues $2.4 billion worth of bonds, notes.
Locally, long-term ACGB yields again started the week with a moderate rise which was reversed the next day. Yields then rose moderately each day for the remainder of the week. By the end of it, the 3-year ACGB yield had gained 29bps to 3.54%*, the 10-year yield had added 16bps to 3.76%* while the 20-year yield finished 14bps higher at 4.02%*. The spread between US and Australian 10-year Treasury bond yields widened from +29bps to +31bps.
* December futures
Over in the US, long-term bond yields increased through the week with the exception of Wednesday when a modest decline took place.
August’s CPI report was released on Tuesday night (AEDT) and it revealed a higher-than-expected 0.1% increase. The annual inflation rate slowed from 8.5% to 8.2% but the core inflation rate increased from 5.9% to 6.3%.
Producer price indices for August were released the next day. Producer prices declined by 0.1% over the month but still increased by 8.7% over the year to August.
On Thursday, August’s retail sales report indicated total sales increased by 0.3% over the month, more than the expected flat result. Higher vehicles sales were largely offset by lower fuel sales.
Industrial production numbers for August were also released. There was a 0.2% contraction, in contrast with the expected 0.2%% expansion. This latest reading implied an annual GDP growth rate of 3.5%.
The Atlanta Fed’s Nowcast model was then updated. The September quarter GDP growth estimate was lowered to 0.5% annualised, or a 0.1% expansion over the quarter.
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, rising from August’s final reading of 58.2 to 59.5, still well below its long-term average.
By this point, the US 2-year Treasury bond yield had gained 30bps to 3.86%, the 10-year yield had increased by 14bps to 3.45% while the 30-year yield finished 7bps higher at 3.52%.
In major euro-zone markets, 10-year bond yields generally alternated between up and down days over the week.
On Tuesday night (AEST), Germany’s ZEW September survey indicated its Economic Sentiment index fell from August’s reading of -55.3 to -61.9, lower than the -59.5 which had been generally expected. ZEW’s current conditions index fell from -47.6 to -60.5.
July’s industrial production report was released the next day. Output slumped by 2.3%, undershooting the expected 1.1% fall.
By the end of the week, the German 10-year bund yield had gained 6bps to 1.75% while the French 10-year OAT yield had added 5bps to 2.31%. The Italian 10-year BTP yield increased by 2bps to 4.03% over the week while the British 10-year gilt yield finished 4bps higher at 3.13%.
The AOFM held one indexed-linked bond tender and one vanilla bond tender during the week. $100 million of February 2050 ILBs were priced at a real yield of 1.77% and $800 million of May 2032s were priced at a yield of 3.68%. There were also two Treasury note tenders which raised $1.5 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 $16.15 billion. There are currently $821.55 billion of Treasury bonds and $37.586 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 $26.50 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.64 | 0.19 | 0.36 | 2.64 | 2.64 |
| 21-Apr-23 | 5.5 | 34,200 | 3.03 | 0.21 | 0.17 | 3.03 | 3.03 |
| 21-Apr-24 | 2.75 | 35,900 | 3.20 | 0.27 | 0.32 | 3.20 | 3.20 |
| 21-Nov-24 | 0.25 | 41,300 | 3.34 | 0.29 | 0.33 | 3.34 | 3.34 |
| 21-Apr-25 | 3.25 | 40,100 | 3.41 | 0.29 | 0.31 | 3.41 | 3.41 |
| 21-Nov-25 | 0.25 | 37,300 | 3.46 | 0.28 | 0.31 | 3.46 | 3.46 |
| 21-Apr-26 | 4.25 | 38,100 | 3.48 | 0.29 | 0.31 | 3.48 | 3.48 |
| 21-Sep-26 | 0.5 | 36,000 | 3.50 | 0.27 | 0.30 | 3.50 | 3.50 |
| 21-Apr-27 | 4.75 | 36,000 | 3.50 | 0.26 | 0.30 | 3.50 | 3.50 |
| 21-Nov-27 | 2.75 | 31,400 | 3.54 | 0.24 | 0.30 | 3.54 | 3.54 |
| 21-May-28 | 2.25 | 29,700 | 3.55 | 0.23 | 0.28 | 3.55 | 3.55 |
| 21-Nov-28 | 2.75 | 32,600 | 3.57 | 0.22 | 0.27 | 3.57 | 3.57 |
| 21-Apr-29 | 3.25 | 33,700 | 3.59 | 0.20 | 0.28 | 3.59 | 3.59 |
| 21-Nov-29 | 2.75 | 33,400 | 3.62 | 0.19 | 0.28 | 3.62 | 3.62 |
| 21-May-30 | 2.5 | 37,100 | 3.65 | 0.18 | 0.28 | 3.65 | 3.65 |
| 21-Dec-30 | 1 | 38,700 | 3.69 | 0.18 | 0.29 | 3.69 | 3.69 |
| 21-Jun-31 | 1.5 | 38,100 | 3.70 | 0.17 | 0.29 | 3.70 | 3.70 |
| 21-Nov-31 | 1 | 41,800 | 3.71 | 0.16 | 0.29 | 3.71 | 3.71 |
| 21-May-32 | 1.25 | 37,600 | 3.72 | 0.16 | 0.29 | 3.72 | 3.72 |
| 21-Nov-32 | 1.75 | 26,200 | 3.74 | 0.16 | 3.74 | 3.74 | 3.74 |
| 21-Apr-33 | 4.5 | 21,400 | 3.73 | 0.16 | 0.28 | 3.73 | 3.73 |
| 21-Nov-22 | 3 | 16,800 | 3.77 | 0.15 | 3.77 | 3.77 | 3.77 |
| 21-Jun-35 | 2.75 | 9,550 | 3.86 | 0.15 | 0.29 | 3.86 | 3.86 |
| 21-Apr-37 | 3.75 | 12,300 | 3.92 | 0.14 | 0.27 | 3.92 | 3.92 |
| 21-Jun-39 | 3.25 | 10,300 | 3.97 | 0.13 | 0.24 | 3.97 | 3.97 |
| 21-May-41 | 2.75 | 13,500 | 4.00 | 0.13 | 0.21 | 4.00 | 4.00 |
| 21-Mar-47 | 3 | 13,600 | 4.02 | 0.15 | 0.19 | 4.02 | 4.02 |
| 21-Jun-51 | 1.75 | 18,400 | 3.99 | 0.16 | 0.19 | 3.99 | 3.99 |