Summary: Bond yields drop in Australia; ACGB 10-year spread to US Treasury yield narrows from +71bps to +43bps; 10-year bond yields down in US, major European markets; AOFM issues $3.3 billion worth of bonds, notes.
Locally, long-term ACGB yields started the week with a substantial fall and that set the tone for the remainder of the week. By the end of it, the 3-year ACGB yield had dropped by 48bps to 2.77%, the 10-year yield had shed 39bps to 3.08% while the 20-year yield finished 29bps lower at 3.43%. The spread between US and Australian 10-year Treasury bond yields narrowed from +71bps to +43bps.
Over in the US, long-term bond yields increased modestly over the first two days of the week before reversing course and falling over the following three days.
The Conference Board’s July reading of its Consumer Sentiment Index was released on Tuesday. The index deteriorated again and “recession risks persist”.
The FOMC’s two-day meeting ended the next day and another 75bps increase to its target range for the federal funds rate was announced. The decision was in line with expectations and more increases are expected.
June quarter GDP figures were released on Thursday. The US economy contracted over the quarter rather than expanding by 0.1% as expected. A large fall in inventories was a major drag.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by 0.6% in June and by 4.8% on annual basis, up from 4.7% in May.
The Atlanta Fed’s Nowcast model was also updated. The initial September quarter GDP growth estimate was 2.1% (annualised), or a 0.5% expansion over the quarter.
By this stage, US 2-year and 10-year Treasury bond yields had each lost 11bps to 2.88% and 2.65% respectively while the 30-year yield finished 4bps higher at 3.01%.
In major euro-zone markets, 10-year bond yields started the week quietly but then fell noticeably on Tuesday and again on Thursday. Yields then declined again at the end of the week.
Germany’s ifo Institute released the July reading of its business climate index at the start of the week. The index decreased again as German firms’ views of current conditions and the short-term outlook both deteriorated.
The latest euro-zone’s Economic Sentiment Indicator (ESI) was released on Thursday night (AEST). It continued its slide in July and registered a reading just below the long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-July growth rate of 1.2%, down from 2.3%.
At the end of the week, the “flash” July consumer price index (CPI) report produced an annual inflation rate of 8.9% in the euro-zone, more than the expected 8.7% as well as June’s final reading of 8.6%. Core annual CPI increased from 3.7% to 4.0%.
June quarter GDP figures were released at the same time. The euro-zone economy expanded by 0.7%, more than the expected 0.2% increase, taking the annual growth rate from 5.4% to 4.0%.
By this point, the German 10-year bund yield had shed 21bps to 0.81% while the French 10-year OAT yield had lost 22bps to 1.39%. The Italian 10-year BTP yield decreased by 28bps to 3.04% over the week while the British 10-year gilt yield finished 8bps lower at 1.86%.
The AOFM held two bond tenders during the week. $300 million of March 2047s and $1 billion of November 2033s were priced at yields of 3.62% and 3.09% 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 $5.80 billion. There are currently $811.55 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 $27.00 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.22 | -0.10 | 0.43 | 2.34 | 2.22 |
| 21-Apr-23 | 5.50 | 34,200 | 2.30 | -0.30 | -0.08 | 2.61 | 2.30 |
| 21-Apr-24 | 2.75 | 35,900 | 2.43 | -0.35 | -0.31 | 2.78 | 2.43 |
| 21-Nov-24 | 0.25 | 41,300 | 2.54 | -0.41 | -0.50 | 2.95 | 2.54 |
| 21-Apr-25 | 3.25 | 40,100 | 2.66 | -0.48 | -0.54 | 3.14 | 2.66 |
| 21-Nov-25 | 0.25 | 22,000 | 2.73 | -0.44 | -0.58 | 3.17 | 2.73 |
| 21-Apr-26 | 4.25 | 38,100 | 2.74 | -0.51 | -0.61 | 3.24 | 2.74 |
| 21-Sep-26 | 0.50 | 35,300 | 2.76 | -0.51 | -0.62 | 3.27 | 2.76 |
| 21-Apr-27 | 4.75 | 35,300 | 2.78 | -0.51 | -0.64 | 3.29 | 2.78 |
| 21-Nov-27 | 2.75 | 30,700 | 2.82 | -0.50 | -0.65 | 3.32 | 2.82 |
| 21-May-28 | 2.25 | 29,700 | 2.86 | -0.48 | -0.65 | 3.35 | 2.86 |
| 21-Nov-28 | 2.75 | 32,600 | 2.89 | -0.47 | -0.66 | 3.36 | 2.89 |
| 21-Apr-29 | 3.25 | 33,000 | 2.91 | -0.47 | -0.66 | 3.38 | 2.91 |
| 21-Nov-29 | 2.75 | 33,400 | 2.95 | -0.46 | -0.66 | 3.41 | 2.95 |
| 21-May-30 | 2.50 | 37,100 | 2.98 | -0.46 | -0.67 | 3.44 | 2.98 |
| 21-Dec-30 | 1.00 | 24,700 | 3.03 | -0.39 | -0.66 | 3.42 | 3.03 |
| 21-Jun-31 | 1.50 | 38,100 | 3.04 | -0.39 | -0.67 | 3.42 | 3.04 |
| 21-Nov-31 | 1.00 | 21,000 | 3.05 | -0.38 | -0.67 | 3.43 | 3.05 |
| 21-May-32 | 1.25 | 36,000 | 3.06 | -0.38 | -0.66 | 3.44 | 3.06 |
| 21-Apr-33 | 4.50 | 20,600 | 3.08 | -0.39 | -0.66 | 3.47 | 3.08 |
| 21-Jun-35 | 2.75 | 9,550 | 3.19 | -0.44 | -0.64 | 3.63 | 3.19 |
| 21-Apr-37 | 3.75 | 12,000 | 3.27 | -0.39 | -0.58 | 3.67 | 3.27 |
| 21-Jun-39 | 3.25 | 10,300 | 3.36 | -0.36 | -0.53 | 3.72 | 3.36 |
| 21-May-41 | 2.75 | 13,500 | 3.43 | -0.33 | -0.50 | 3.76 | 3.43 |
| 21-Mar-47 | 3.00 | 13,600 | 3.44 | -0.30 | -0.47 | 3.65 | 3.44 |
| 21-Jun-51 | 1.75 | 15,000 | 3.42 | -0.30 | -0.42 | 3.72 | 3.42 |