Summary: Bond yields lower in Australia; ACGB 10-year spread to US Treasury yield tightens from -3bps to -26bps; 10-year bond yields down in US, major European markets; AOFM issues $3.1 billion worth of bonds, notes.
Locally, long-term ACGB yields fell each and every day of the week. By the end of it, the 3-year ACGB yield had lost 50bps to 3.33%, the 10-year yield had shed 47bps to 3.75% while the 20-year yield finished 45bps lower at 4.08%. The spread between US and Australian 10-year Treasury bond yields “tightened” from -3bps to -26bps.
Over in the US, 10-year bond yields fell consistently over the week until Friday when yields reversed course.
S&P Global Market Intelligence’s latest flash reading of its composite index was released at the start of the week, with the index falling from September’s final reading of 49.5 to 47.3. The manufacturing index decreased from 52.0 to 49.9 and the services index lost 2.7 points to 46.6. S&P Global’s Chris Williamson said, “The US economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply.”
The Conference Board’s October reading of its Consumer Sentiment Index was released on Tuesday. The index fell noticeably but still remained above its long-term average. Expectations regarding the short-term outlook “remained dismal.”
September quarter GDP figures were released on Thursday. The US economy resumed expanding at a pace largely in line with expectations after contracting in the previous two quarters.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by 0.5% in September and by 5.1% on annual basis, up from 4.9% in August.
The Atlanta Fed’s Nowcast model was also updated. The December quarter GDP growth estimate was initiated at 3.1% annualised, or a 0.8% expansion over the quarter.
By this point, the US 2-year Treasury bond yield had lost 21bps to 4.40%, the 10-year yield had shed 24bps to 4.01% while the 30-year yield finished 13bps lower at 4.14%.
In major euro-zone markets, 10-year bond yields followed very similar paths to their US counterpart.
S&P Global Market Intelligence released its October flash PMI figures for the euro-zone at the start of the week. The preliminary reading of the composite index was 47.1, down from September’s final reading of 48.1. S&P Global’s Chris Williamson said “The eurozone economy looks set to contract in the fourth quarter given the steepening loss of output and deteriorating demand picture seen in October, adding to speculation that a recession is looking increasingly inevitable.”
Germany’s ifo Institute released the October reading of its business climate index the next day. The index slipped a touch but one ANZ economist described the result as a “first sign of stability”. German firms’ views of current conditions deteriorated slightly while the short-term outlook improved a little.
The Governing Council of the ECB held its October policy meeting on Thursday. As expected, the ECB raised its three policy rates, all by 75bps.
The latest Economic Sentiment Indicator (ESI) was released at the end of the week. It continued its slide in October, registering 92.5, down from September’s 93.7 and falling even further below the long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-October growth rate of -0.3%, down from zero.
By this stage, the German 10-year bund yield shed 35bps to 2.10% and the French 10-year OAT yield had lost 42bps to 2.60%y. The Italian 10-year BTP yield plunged by 68bps to 4.14% while the British 10-year gilt yield finished 52bps lower at 3.47%.
The AOFM updated its forecasts for issuance in the 2022/23 financial year in the wake of Tuesday’s Federal Budget. The AOFM now expects to issue around $95 billion worth of vanilla bonds and $2.0-$2.5 billion worth of index-linked bonds.
The AOFM held two vanilla bond tenders during the week. $300 million of June 2051s and $800 million of November 2032s were priced at yields of 4.56% and 3.75% respectively. 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 $24.95 billion. There are currently $830.15 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 | 2.77 | 0.01 | -0.14 | 2.80 | 2.76 |
| 21-Apr-23 | 5.50 | 34,200 | 3.13 | -0.10 | -0.05 | 3.18 | 3.13 |
| 21-Apr-24 | 2.75 | 35,900 | 3.13 | -0.33 | -0.24 | 3.36 | 3.13 |
| 21-Nov-24 | 0.25 | 41,300 | 3.21 | -0.44 | -0.31 | 3.51 | 3.21 |
| 21-Apr-25 | 3.25 | 40,800 | 3.22 | -0.45 | -0.36 | 3.54 | 3.22 |
| 21-Nov-25 | 0.25 | 38,000 | 3.28 | -0.48 | -0.37 | 3.61 | 3.28 |
| 21-Apr-26 | 4.25 | 38,100 | 3.31 | -0.48 | -0.35 | 3.65 | 3.31 |
| 21-Sep-26 | 0.50 | 36,700 | 3.35 | -0.49 | -0.33 | 3.70 | 3.35 |
| 21-Apr-27 | 4.75 | 36,700 | 3.38 | -0.48 | -0.31 | 3.74 | 3.38 |
| 21-Nov-27 | 2.75 | 31,400 | 3.44 | -0.48 | -0.29 | 3.80 | 3.44 |
| 21-May-28 | 2.25 | 29,700 | 3.48 | -0.48 | -0.28 | 3.86 | 3.48 |
| 21-Nov-28 | 2.75 | 33,300 | 3.51 | -0.47 | -0.26 | 3.90 | 3.51 |
| 21-Apr-29 | 3.25 | 34,500 | 3.55 | -0.47 | -0.24 | 3.94 | 3.55 |
| 21-Nov-29 | 2.75 | 33,400 | 3.59 | -0.48 | -0.23 | 3.99 | 3.59 |
| 21-May-30 | 2.50 | 37,100 | 3.63 | -0.47 | -0.21 | 4.03 | 3.63 |
| 21-Dec-30 | 1.00 | 38,700 | 3.67 | -0.47 | -0.21 | 4.08 | 3.67 |
| 21-Jun-31 | 1.50 | 38,100 | 3.69 | -0.47 | -0.21 | 4.11 | 3.69 |
| 21-Nov-31 | 1.00 | 21,000 | 3.71 | -0.47 | -0.20 | 4.13 | 3.71 |
| 21-May-32 | 1.25 | 38,400 | 3.72 | -0.46 | -0.19 | 4.13 | 3.72 |
| 21-Nov-32 | 1.75 | 27,800 | 3.73 | -0.47 | -0.19 | 4.15 | 3.73 |
| 21-Apr-33 | 4.50 | 22,200 | 3.74 | -0.46 | -0.19 | 4.15 | 3.74 |
| 21-Nov-22 | 3.00 | 17,600 | 3.78 | -0.46 | -0.17 | 4.19 | 3.78 |
| 21-Jun-35 | 2.75 | 9,550 | 3.89 | -0.45 | -0.15 | 4.31 | 3.89 |
| 21-Apr-37 | 3.75 | 12,300 | 3.96 | -0.46 | -0.13 | 4.39 | 3.96 |
| 21-Jun-39 | 3.25 | 10,300 | 4.04 | -0.45 | -0.09 | 4.48 | 4.04 |
| 21-May-41 | 2.75 | 13,500 | 4.09 | -0.44 | -0.06 | 4.53 | 4.09 |
| 21-Mar-47 | 3.00 | 13,600 | 4.10 | -0.42 | -0.04 | 4.45 | 4.10 |
| 21-Jun-51 | 1.75 | 18,700 | 4.06 | -0.42 | -0.04 | 4.52 | 4.06 |