Summary: Bond yields up in Australia; ACGB 10-year spread to US Treasury yield widens from +52bps to +71bps; 10-year bond yields down in US, most major European markets; AOFM issues $4.00 billion worth of bonds, notes.
Locally, long-term ACGB yields started the week with a modest rise which continued through to Thursday. Yields then fell considerably at the end of the week. By this point, the 3-year ACGB yield had gained 9bps to 3.25%, the 10-year yield had added 3bps to 3.47% while the 20-year yield finished 4bps higher at 3.72%. The spread between US and Australian 10-year Treasury bond yields widened from +52bps to +71bps.
Over in the US, long-term bond yields increased moderately for the first three days of the week before falling substantially on Thursday and Friday.
There was little in the way of notable US data until Thursday when The Conference Board’s June reading of its Leading Index came out. The figure undershot expectations and now The Conference Board is expecting a recession in the US either late this year or early next year.
IHS Markit’s latest flash reading of its composite index was also released, with the index falling from June’s final reading of 52.3 to 47.5. The manufacturing index declined from 52.7 to 52.3 and the services index lost 5.7 points to 47.0. “The preliminary PMI data for July point to a worrying deterioration in the economy,” according to S&P Global’s Chris Williamson.
By the end of the week, the US 2-year Treasury bond yield had shed 13bps to 2.99%, the 10-year yield had lost 16bps to 2.76% while the 30-year yield finished 11bps lower at 2.97%.
In major euro-zone markets, 10-year bond yields followed broadly paths to their US counterparts, although Wednesday was an exception again when euro-zone yields slipped a touch.
The results of July’s consumer sentiment survey were released midweek. They indicated euro-zone consumers had become as even more pessimistic than they were at the beginning of the pandemic in April 2020, setting a new series-low.
IHS Markit released its July flash PMI figures for the euro-zone the next day. The preliminary reading of the composite index was 49.4, down from June’s final reading of 52.0. IHS Markit’s Chris Williamson described the euro-zone economy as “set to contract in the third quarter” with “forward-looking indicators hint[ing] at worse to come…”
The ECB’s Governing Council announced a 50bps rise to its main policy rate the same day, surprising economists who had generally expected a 25bps rise. The ECB also revealed its recently flagged “Transmission Protection Instrument, another bond purchase plan. However, this one is designed to shore up the bond markets of “peripheral” countries should spreads between them and those of “core” countries widen to unacceptable levels.
By the end of the week, the German 10-year bund yield had lost 11bps to 1.02% while the French 10-year OAT yield had shed 12bps to 1.61%. The Italian 10-year BTP yield gained 7bps to 3.32% over the week while the British 10-year gilt yield finished 15bps lower at 1.94%.
The AOFM held two bond tenders during the week. $800 million of May 2032s and $700 million of September 2026s were priced at yields of 3.54% and 3.21% respectively.
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 $4.50 billion. There are currently $810.25 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 $25.00 billion of short-term Treasury notes currently outstanding after $6 billion matured on Friday.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.32 | 0.15 | 0.30 | 2.34 | 2.22 |
| 21-Apr-23 | 5.50 | 34,200 | 2.61 | 0.16 | -0.22 | 2.64 | 2.48 |
| 21-Apr-24 | 2.75 | 35,900 | 2.78 | 0.20 | -0.53 | 2.82 | 2.63 |
| 21-Nov-24 | 0.25 | 41,300 | 2.95 | 0.15 | -0.53 | 3.04 | 2.80 |
| 21-Apr-25 | 3.25 | 40,100 | 3.14 | 0.16 | -0.49 | 3.19 | 3.01 |
| 21-Nov-25 | 0.25 | 22,000 | 3.17 | 0.10 | -0.56 | 3.28 | 3.08 |
| 21-Apr-26 | 4.25 | 38,100 | 3.24 | 0.14 | -0.52 | 3.30 | 3.13 |
| 21-Sep-26 | 0.50 | 35,300 | 3.27 | 0.15 | -0.53 | 3.33 | 3.16 |
| 21-Apr-27 | 4.75 | 35,300 | 3.29 | 0.15 | -0.55 | 3.34 | 3.17 |
| 21-Nov-27 | 2.75 | 30,700 | 3.32 | 0.13 | -0.57 | 3.37 | 3.22 |
| 21-May-28 | 2.25 | 29,700 | 3.35 | 0.13 | -0.58 | 3.40 | 3.24 |
| 21-Nov-28 | 2.75 | 32,600 | 3.36 | 0.12 | -0.59 | 3.42 | 3.26 |
| 21-Apr-29 | 3.25 | 33,000 | 3.38 | 0.11 | -0.60 | 3.44 | 3.29 |
| 21-Nov-29 | 2.75 | 33,400 | 3.41 | 0.11 | -0.61 | 3.47 | 3.33 |
| 21-May-30 | 2.50 | 37,100 | 3.44 | 0.10 | -0.62 | 3.50 | 3.36 |
| 21-Dec-30 | 1.00 | 24,700 | 3.42 | 0.03 | -0.68 | 3.55 | 3.38 |
| 21-Jun-31 | 1.50 | 38,100 | 3.42 | 0.03 | -0.69 | 3.56 | 3.40 |
| 21-Nov-31 | 1.00 | 21,000 | 3.43 | 0.03 | -0.69 | 3.57 | 3.40 |
| 21-May-32 | 1.25 | 36,000 | 3.44 | 0.03 | -0.69 | 3.57 | 3.41 |
| 21-Apr-33 | 4.50 | 20,600 | 3.47 | 0.04 | -0.69 | 3.60 | 3.43 |
| 21-Jun-35 | 2.75 | 9,550 | 3.63 | 0.10 | -0.62 | 3.69 | 3.55 |
| 21-Apr-37 | 3.75 | 12,000 | 3.67 | 0.09 | -0.61 | 3.73 | 3.59 |
| 21-Jun-39 | 3.25 | 10,300 | 3.72 | 0.10 | -0.62 | 3.77 | 3.64 |
| 21-May-41 | 2.75 | 13,500 | 3.76 | 0.10 | -0.62 | 3.81 | 3.67 |
| 21-Mar-47 | 3.00 | 13,300 | 3.74 | 0.10 | -0.65 | 3.79 | 3.74 |
| 21-Jun-51 | 1.75 | 15,000 | 3.72 | 0.09 | -0.62 | 3.77 | 3.64 |