Summary: Bond yields up in Australia; ACGB 10-year spread to US Treasury yield widens from +45bps to +55bps; 10-year bond yields up in US, major European markets; AOFM issues $4.45 billion worth of bonds, notes.
Locally, long-term ACGB yields started the week with a noticeable rise, continued with a series of moderate increases before falling back considerably at the very end of the week. By this stage, the 3-year ACGB yield had gained 11bps to 3.28%, the 10-year yield had added 17bps to 3.59% while the 20-year yield finished 14bps higher at 3.91%. The spread between US and Australian 10-year Treasury bond yields widened from +45bps to +55bps.
Over in the US, long-term bond yields rose moderately at the start of the week and continued in this fashion until Thursday when yields fell. Yields finished the week with a modest rise.
S&P Global Market Intelligence’s latest flash reading of its composite index was released on Tuesday, with the index falling from July’s final reading of 47.7 to 45.0. The manufacturing index slipped from 52.2 to 51.3 and the services index lost 3.2 points to 44.2. “Demand conditions were dampened again, sparked by the impact of interest rate hikes and strong inflationary pressures on customer spending, which weighed on activity,” according to S&P Global’s Sian Jones.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by just 0.1% in July and by 4.8% on annual basis, up from 4.7% in June.
The latest reading of the Atlanta Fed’s Nowcast model was also updated. The September quarter GDP growth estimate was steady at 1.6% annualised, or a 0.4% expansion over the quarter.
By this point, the US 2-year Treasury bond yield had gained 16bps to 3.38%, the 10-year yield had added 7bps to 3.04% while the 30-year yield finished 1bps lower at 3.20%.
In major euro-zone markets, 10-year bond yields followed a similar path to their US counterparts.
The results of August’s consumer sentiment survey were released on Tuesday night (AEST). They indicated euro-zone consumers had become slightly less pessimistic.
S&P Global Market Intelligence released its August flash PMI figures for the euro-zone the same day. The preliminary reading of the composite index was 49.2, down from July’s final reading of 49.9. Economics Director Andrew Harker said, “The latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year.”
Germany’s ifo Institute released the August reading of its business climate index on Thursday. The index decreased again, although the decline was modest. German firms’ views of current conditions and the short-term outlook both deteriorated.
The minutes of the ECB Governing Council’s July meeting were also published. The tone matched that of other central banks, referring to “intensified” inflationary pressures and the risk of allowing inflation expectations to become “unanchored”.
By the end of the week, the German 10-year bund yield had gained 16bps to 1.39% while the French 10-year OAT yield had added 20bps to 2.01%. The Italian 10-year BTP yield increased by 19ps to 3.68% over the week while the British 10-year gilt yield also finished 19bps higher at 2.60%.
The AOFM held three vanilla bond tenders and an index-linked bond tender during the week. $300 million of June 2051s, $800 million of November 2033s and $700 million of April 2029s were priced at yields of 3.88%, 3.68% and 3.45% respectively while $150 million of November 2032 ILBs were priced at a real yield of 1.19%. There were also three Treasury note tenders which raised $2.5 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 $12.65 billion. There are currently $818.15 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 $25.00 billion of short-term Treasury notes currently outstanding after $55.5 billion matured on Friday.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.36 | 0.07 | 0.04 | 2.36 | 2.34 |
| 21-Apr-23 | 5.50 | 34,200 | 2.80 | 0.06 | 0.19 | 2.83 | 2.80 |
| 21-Apr-24 | 2.75 | 35,900 | 3.01 | 0.13 | 0.23 | 3.01 | 2.98 |
| 21-Nov-24 | 0.25 | 41,300 | 3.16 | 0.18 | 0.21 | 3.16 | 3.09 |
| 21-Apr-25 | 3.25 | 40,100 | 3.23 | 0.14 | 0.09 | 3.23 | 3.19 |
| 21-Nov-25 | 0.25 | 22,000 | 3.33 | 0.19 | 0.16 | 3.33 | 3.25 |
| 21-Apr-26 | 4.25 | 38,100 | 3.30 | 0.15 | 0.06 | 3.30 | 3.26 |
| 21-Sep-26 | 0.50 | 36,000 | 3.38 | 0.20 | 0.10 | 3.38 | 3.28 |
| 21-Apr-27 | 4.75 | 36,000 | 3.34 | 0.16 | 0.06 | 3.34 | 3.29 |
| 21-Nov-27 | 2.75 | 31,400 | 3.39 | 0.17 | 0.07 | 3.39 | 3.33 |
| 21-May-28 | 2.25 | 29,700 | 3.41 | 0.18 | 0.07 | 3.41 | 3.34 |
| 21-Nov-28 | 2.75 | 32,600 | 3.43 | 0.18 | 0.07 | 3.43 | 3.37 |
| 21-Apr-29 | 3.25 | 33,000 | 3.46 | 0.18 | 0.08 | 3.46 | 3.39 |
| 21-Nov-29 | 2.75 | 33,400 | 3.49 | 0.18 | 0.08 | 3.49 | 3.42 |
| 21-May-30 | 2.50 | 37,100 | 3.52 | 0.19 | 0.08 | 3.52 | 3.44 |
| 21-Dec-30 | 1.00 | 24,700 | 3.63 | 0.27 | 0.22 | 3.63 | 3.48 |
| 21-Jun-31 | 1.50 | 38,100 | 3.65 | 0.27 | 0.23 | 3.65 | 3.50 |
| 21-Nov-31 | 1.00 | 21,000 | 3.67 | 0.27 | 0.23 | 3.67 | 3.51 |
| 21-May-32 | 1.25 | 36,800 | 3.67 | 0.27 | 0.24 | 3.67 | 3.52 |
| 21-Apr-33 | 4.50 | 20,600 | 3.69 | 0.27 | 0.23 | 3.69 | 3.54 |
| 21-Jun-35 | 2.75 | 9,550 | 3.74 | 0.19 | 0.11 | 3.74 | 3.66 |
| 21-Apr-37 | 3.75 | 12,300 | 3.81 | 0.18 | 0.14 | 3.81 | 3.74 |
| 21-Jun-39 | 3.25 | 10,300 | 3.87 | 0.16 | 0.15 | 3.87 | 3.81 |
| 21-May-41 | 2.75 | 13,500 | 3.92 | 0.15 | 0.16 | 3.92 | 3.86 |
| 21-Mar-47 | 3.00 | 13,600 | 3.93 | 0.14 | 0.19 | 3.93 | 3.89 |
| 21-Jun-51 | 1.75 | 15,000 | 3.90 | 0.13 | 0.18 | 3.90 | 3.86 |