Summary: Bond yields up in Australia; ACGB 10-year spread to US Treasury yield narrows from +43bps to +28bps; 10-year bond yields up in US, most major European markets; AOFM issues $3.5 billion worth of bonds, notes.
Locally, long-term ACGB yields started the week sedately enough, only to then drop noticeably on Tuesday. Yields then reversed course and ran up over the next two days before falling back at the end of the week. By this point, the 3-year ACGB yield had gained 13bps to 2.90% while 10-year and 20-year yield each finished 3bps higher at 3.11% and 3.43% respectively. The spread between US and Australian 10-year Treasury bond yields narrowed from +43bps to +28bps.
Over in the US, long-term bond yields displayed an increased level of volatility during week, falling on Monday and Wednesday and rising substantially on Tuesday and Friday.
The ISM’s July Manufacturing PMI was released at the start of the week. It recorded a slightly lower reading which still signifies expansion and provided a sign “price pressures may be easing.”
June’s JOLTS report came out the next day and it indicated the US quit rate remained unchanged. Job openings, quits and separations all declined.
Midweek, the ISM’s services activity index increased from 55.3 to 56.7 in July.
The Atlanta Fed’s Nowcast model was updated on Thursday. The September quarter GDP growth estimate was amended to 1.4% (annualised), or a 0.3% expansion over the quarter.
At the end of the week, July’s non-farm payrolls report produced another rise in employment which exceeded expectations. The jobless rate declined to 3.5%, aided by a lower participation rate which slipped to 62.1%.
By this point, the US 2-year Treasury bond yield had jumped 33bps to 3.21%, the 10-year yield had gained 18bps to 2.83% while the 30-year yield finished 6bps higher at 3.07%.
In major euro-zone markets, 10-year bond yields followed a broadly similar path to their US counterparts.
There was not much of particular note in terms of euro-zone economic reports during the week, although the Bank of England raised its Bank Rate by 50bps to 1.75% on Thursday, as expected. Quantitative tightening is expected to be implemented at the BoE’s next meeting. Ominously, the BoE stated it expects a UK recession later this year.
By the end of the week, the German 10-year bund yield had added 14bps to 0.95% while the French 10-year OAT yield had gained 10bps to 1.49%. The Italian 10-year BTP yield declined by 2bps to 3.02% over the week while the British 10-year gilt yield finished 19bps higher at 2.05%.
The AOFM held two bond tenders during the week. $800 million of November 2032s and $700 million of April 2027s were priced at yields of 3.09% and 2.85% respectively. There were also two Treasury note tenders which raised $2 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 $7.3 billion. There are currently $813.05 billion of Treasury bonds and $37.236 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 $29.00 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.28 | 0.06 | 0.45 | 2.28 | 2.22 |
| 21-Apr-23 | 5.50 | 34,200 | 2.61 | 0.31 | 0.30 | 2.61 | 2.32 |
| 21-Apr-24 | 2.75 | 35,900 | 2.62 | 0.19 | 0.13 | 2.62 | 2.46 |
| 21-Nov-24 | 0.25 | 41,300 | 2.74 | 0.20 | -0.05 | 2.74 | 2.54 |
| 21-Apr-25 | 3.25 | 40,100 | 2.81 | 0.15 | -0.16 | 2.81 | 2.65 |
| 21-Nov-25 | 0.25 | 22,000 | 2.85 | 0.12 | -0.23 | 2.85 | 2.73 |
| 21-Apr-26 | 4.25 | 38,100 | 2.86 | 0.12 | -0.26 | 2.86 | 2.72 |
| 21-Sep-26 | 0.50 | 35,300 | 2.88 | 0.12 | -0.29 | 2.88 | 2.74 |
| 21-Apr-27 | 4.75 | 36,000 | 2.88 | 0.10 | -0.33 | 2.88 | 2.75 |
| 21-Nov-27 | 2.75 | 30,700 | 2.91 | 0.09 | -0.37 | 2.91 | 2.80 |
| 21-May-28 | 2.25 | 29,700 | 2.93 | 0.07 | -0.41 | 2.93 | 2.83 |
| 21-Nov-28 | 2.75 | 32,600 | 2.95 | 0.06 | -0.43 | 2.95 | 2.86 |
| 21-Apr-29 | 3.25 | 33,000 | 2.97 | 0.05 | -0.45 | 2.97 | 2.88 |
| 21-Nov-29 | 2.75 | 33,400 | 3.00 | 0.05 | -0.46 | 3.00 | 2.92 |
| 21-May-30 | 2.50 | 37,100 | 3.03 | 0.05 | -0.47 | 3.03 | 2.95 |
| 21-Dec-30 | 1.00 | 24,700 | 3.06 | 0.03 | -0.49 | 3.06 | 3.03 |
| 21-Jun-31 | 1.50 | 38,100 | 3.07 | 0.03 | -0.50 | 3.07 | 3.04 |
| 21-Nov-31 | 1.00 | 21,000 | 3.08 | 0.03 | -0.51 | 3.08 | 3.05 |
| 21-May-32 | 1.25 | 36,000 | 3.08 | 0.03 | -0.51 | 3.08 | 3.06 |
| 21-Apr-33 | 4.50 | 20,600 | 3.11 | 0.03 | -0.51 | 3.11 | 3.08 |
| 21-Jun-35 | 2.75 | 9,550 | 3.23 | 0.03 | -0.49 | 3.23 | 3.16 |
| 21-Apr-37 | 3.75 | 12,000 | 3.30 | 0.03 | -0.44 | 3.30 | 3.24 |
| 21-Jun-39 | 3.25 | 10,300 | 3.39 | 0.02 | -0.40 | 3.39 | 3.33 |
| 21-May-41 | 2.75 | 13,500 | 3.46 | 0.03 | -0.35 | 3.46 | 3.40 |
| 21-Mar-47 | 3.00 | 13,600 | 3.49 | 0.04 | -0.34 | 3.49 | 3.42 |
| 21-Jun-51 | 1.75 | 15,000 | 3.46 | 0.04 | -0.35 | 3.46 | 3.40 |