Summary: Bond yields up in Australia; ACGB 10-year spread to US Treasury yield tightens from +55bps to +46bps; 10-year bond yields up in US, major European markets; AOFM issues $3.5 billion worth of bonds, notes.
Locally, long-term ACGB yields again started the week with a noticeable rise, fell back over the next two days and then increased significantly again on Thursday. Yields then declined moderately on Friday. By this stage, the 3-year ACGB yield had added 4bps to 3.32%, the 10-year yield had gained 7bps to 3.66% while the 20-year yield finished 3bps higher at 3.94%. The spread between US and Australian 10-year Treasury bond yields tightened from +55bps to +46bps.
Over in the US, long-term bond yields rose through the week until Friday when they pulled back moderately.
July’s JOLTS report came out on Tuesday and it indicated the US quit rate had slipped from 2.8% to 2.7%. Quits and separations fell but openings increased.
The Conference Board’s August reading of its Consumer Sentiment Index was also released. The index improved for the first time since April but economists are wary given expectations of further Fed rate rises.
The ISM’s August Manufacturing PMI was released on Thursday night (AEST). It recorded an unchanged reading at a level which signifies expansion of the US manufacturing sector.
At the end of the week, August’s non-farm payrolls report produced another rise in employment which slightly exceeded expectations. However, the jobless rate rose from 3.5% to 3.7% as the participation rate rose several percentage points.
By this point, the US 2-year Treasury bond yield had added 2bps to 3.40%, the 10-year yield had gained 16bps to 3.20% while the 30-year yield finished 15bps higher at 3.35%.
In major euro-zone markets, 10-year bond yields followed a similar path to their US counterparts except their rise on Monday night was considerably larger.
The latest euro-zone’s Economic Sentiment Indicator (ESI) was released on Tuesday night (AEST). It continued its slide in August, falling further below the long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-August growth rate of 0.9%, down from 1.2%.
Midweek, the “flash” August consumer price index (CPI) report produced an annual inflation rate of 9.1% in the euro-zone, slightly higher than the expected 9.0% as well as July’s final reading of 8.9%. Core annual CPI increased from 4.0% to 4.3%.
By the end of the week, the German and French 10-year bond yields had each gained 13bps to 1.52% and 2.14% respectively. The Italian 10-year BTP yield increased by 15bps to 3.83% over the week while the British 10-year gilt yield finished 31bps higher at 2.91%.
The AOFM held two bond tenders during the week. $1 billion of November 2032s and $500 million of November 2025s were priced at yields of 3.61% and 3.32% respectively. There were also three Treasury note tenders which raised $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 $14.15 billion. There are currently $819.65 billion of Treasury bonds and $37.486 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 $27.00 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.42 | 0.07 | 0.20 | 2.43 | 2.39 |
| 21-Apr-23 | 5.50 | 34,200 | 2.78 | -0.02 | 0.47 | 2.84 | 2.75 |
| 21-Apr-24 | 2.75 | 35,900 | 3.02 | 0.01 | 0.58 | 3.08 | 2.97 |
| 21-Nov-24 | 0.25 | 41,300 | 3.15 | -0.02 | 0.61 | 3.23 | 3.11 |
| 21-Apr-25 | 3.25 | 40,100 | 3.25 | 0.02 | 0.59 | 3.34 | 3.20 |
| 21-Nov-25 | 0.25 | 22,000 | 3.32 | -0.01 | 0.59 | 3.41 | 3.28 |
| 21-Apr-26 | 4.25 | 38,100 | 3.33 | 0.02 | 0.59 | 3.42 | 3.28 |
| 21-Sep-26 | 0.50 | 36,000 | 3.35 | -0.03 | 0.58 | 3.44 | 3.30 |
| 21-Apr-27 | 4.75 | 36,000 | 3.36 | 0.02 | 0.58 | 3.45 | 3.31 |
| 21-Nov-27 | 2.75 | 31,400 | 3.41 | 0.02 | 0.58 | 3.49 | 3.36 |
| 21-May-28 | 2.25 | 29,700 | 3.44 | 0.03 | 0.58 | 3.51 | 3.40 |
| 21-Nov-28 | 2.75 | 32,600 | 3.47 | 0.04 | 0.58 | 3.53 | 3.42 |
| 21-Apr-29 | 3.25 | 33,700 | 3.50 | 0.04 | 0.59 | 3.55 | 3.45 |
| 21-Nov-29 | 2.75 | 33,400 | 3.54 | 0.05 | 0.58 | 3.58 | 3.49 |
| 21-May-30 | 2.50 | 37,100 | 3.57 | 0.05 | 0.59 | 3.61 | 3.52 |
| 21-Dec-30 | 1.00 | 24,700 | 3.61 | -0.02 | 0.58 | 3.65 | 3.55 |
| 21-Jun-31 | 1.50 | 38,100 | 3.63 | -0.03 | 0.59 | 3.67 | 3.58 |
| 21-Nov-31 | 1.00 | 21,000 | 3.64 | -0.03 | 0.59 | 3.68 | 3.59 |
| 21-May-32 | 1.25 | 36,800 | 3.65 | -0.03 | 0.59 | 3.68 | 3.59 |
| 21-Nov-32 | 1.75 | 26,200 | 3.66 | -0.03 | 3.66 | 3.70 | 3.61 |
| 21-Apr-33 | 4.50 | 20,600 | 3.66 | -0.03 | 0.59 | 3.70 | 3.61 |
| 21-Nov-22 | 3.00 | 16,800 | 3.70 | -0.03 | 3.70 | 3.73 | 3.64 |
| 21-Jun-35 | 2.75 | 9,550 | 3.79 | 0.05 | 0.59 | 3.82 | 3.73 |
| 21-Apr-37 | 3.75 | 12,300 | 3.85 | 0.04 | 0.58 | 3.88 | 3.80 |
| 21-Jun-39 | 3.25 | 10,300 | 3.91 | 0.04 | 0.55 | 3.94 | 3.85 |
| 21-May-41 | 2.75 | 13,500 | 3.95 | 0.03 | 0.52 | 3.97 | 3.88 |
| 21-Mar-47 | 3.00 | 13,600 | 3.94 | 0.01 | 0.49 | 3.96 | 3.87 |
| 21-Jun-51 | 1.75 | 15,000 | 3.89 | -0.02 | 0.46 | 3.90 | 3.82 |