Summary: Bond yields down in Australia; ACGB 10-year spread to US Treasury yield widens from +45bps to +52bps; 10-year bond yields down in US, major European markets; AOFM issues $4.00 billion worth of bonds, notes.
Locally, long-term ACGB yields started the week with a modest rise before falling on Tuesday and Wednesday. Yields then reversed course again and moved a little higher over the remainder of the week. By the end of it, the 3-year ACGB yield had returned to its starting at 3.16% while 10-year and 20-year yields both finished 9bps lower at 3.44% and 3.68% respectively. The spread between US and Australian 10-year Treasury bond yields widened from +45bps to +52bps.
Over in the US, long-term bond yields fell for the first three days of the week before see-sawing up then down on Thursday and Friday.
June’s CPI report was released midweek and it produced another higher-than-expected increase, taking the annual inflation rate from 8.5% to 9.0%. Core inflation slowed from 6.0% to 5.9%.
Producer price indices for June were released the next day. Producer prices increased by 1.1% over the month and by 11.2% over the year to June.
A flurry of data was released at the end of the week.
June’s retail sales report indicated total sales had increased by 1.0% over the month, slightly higher than the expected 0.9%. The annual growth rate
US industrial production numbers for June posted a 0.2% contraction, lower than the expected flat result. The latest reading implied an annual GDP growth rate of 3.7%.
One of the two major measures of US consumer sentiment, the University of Michigan’s Consumer sentiment index bounced from June’s final reading of 50.0 to 51.1, just off its series-low.
The Atlanta Fed’s Nowcast model was also updated. The June quarter GDP growth estimate was lowered from -1.2% (annualised) to -1.5%, or a 0.4% contraction over the quarter.
In major euro-zone markets, 10-year bond yields followed broadly paths to their US counterparts, although Wednesday was an exception when euro-zone yields increased modestly.
On Tuesday night (AEST), Germany’s ZEW July survey indicated its Economic Sentiment index dropped from June’s reading of -28.0 to -53.8, much lower than the -40.5 which had been generally expected. ZEW’s current conditions index also fell from -27.6 to -45.8.
Midweek, the latest report on euro-zone industrial production showed it expanded by 0.8% in May, greater than had been expected and 1.6% higher than in May 2021.
By the end of the week, the German 10-year bund yield had shed 21bps to 1.13% while the French 10-year OAT yield had lost 15bps to 1.73%. The Italian 10-year BTP yield slipped 2bps to 3.25% over the week while the British 10-year gilt yield finished 14bps lower at 2.09%.
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 3.42% and 3.15% 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 $3.00 billion. There are currently $808.75 billion of Treasury bonds and $37.236 billion of Treasury index-linked bonds on issue after $24.763 billion of July 2022s matured. The next series to mature does so on 21 November when $26.50 billion worth of bonds are due. There are also $28.50 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.17 | 0.24 | 0.53 | 2.18 | 1.93 |
| 21-Apr-23 | 5.50 | 34,200 | 2.44 | 0.03 | 0.12 | 2.46 | 2.31 |
| 21-Apr-24 | 2.75 | 35,900 | 2.58 | 0.01 | -0.17 | 2.59 | 2.51 |
| 21-Nov-24 | 0.25 | 41,300 | 2.80 | 0.02 | -0.13 | 2.81 | 2.70 |
| 21-Apr-25 | 3.25 | 40,100 | 2.97 | 0.02 | -0.14 | 2.98 | 2.87 |
| 21-Nov-25 | 0.25 | 22,000 | 3.08 | 0.02 | -0.17 | 3.08 | 2.98 |
| 21-Apr-26 | 4.25 | 38,100 | 3.10 | 0.01 | -0.18 | 3.11 | 3.01 |
| 21-Sep-26 | 0.50 | 34,600 | 3.13 | 0.00 | -0.20 | 3.13 | 3.05 |
| 21-Apr-27 | 4.75 | 35,300 | 3.14 | -0.01 | -0.21 | 3.16 | 3.07 |
| 21-Nov-27 | 2.75 | 30,700 | 3.19 | -0.02 | -0.22 | 3.22 | 3.13 |
| 21-May-28 | 2.25 | 29,700 | 3.22 | -0.03 | -0.26 | 3.26 | 3.17 |
| 21-Nov-28 | 2.75 | 32,600 | 3.24 | -0.05 | -0.27 | 3.30 | 3.21 |
| 21-Apr-29 | 3.25 | 33,000 | 3.27 | -0.05 | -0.28 | 3.33 | 3.24 |
| 21-Nov-29 | 2.75 | 33,400 | 3.31 | -0.06 | -0.28 | 3.37 | 3.28 |
| 21-May-30 | 2.50 | 37,100 | 3.34 | -0.06 | -0.27 | 3.41 | 3.32 |
| 21-Dec-30 | 1.00 | 24,700 | 3.38 | -0.06 | -0.27 | 3.44 | 3.38 |
| 21-Jun-31 | 1.50 | 38,100 | 3.40 | -0.06 | -0.26 | 3.46 | 3.40 |
| 21-Nov-31 | 1.00 | 21,000 | 3.40 | -0.07 | -0.27 | 3.47 | 3.40 |
| 21-May-32 | 1.25 | 35,200 | 3.41 | -0.07 | -0.27 | 3.48 | 3.41 |
| 21-Apr-33 | 4.50 | 20,600 | 3.43 | -0.07 | -0.26 | 3.50 | 3.43 |
| 21-Jun-35 | 2.75 | 9,550 | 3.53 | -0.08 | -0.27 | 3.62 | 3.53 |
| 21-Apr-37 | 3.75 | 12,000 | 3.58 | -0.09 | -0.27 | 3.67 | 3.58 |
| 21-Jun-39 | 3.25 | 10,300 | 3.62 | -0.08 | -0.29 | 3.71 | 3.62 |
| 21-May-41 | 2.75 | 13,500 | 3.66 | -0.09 | -0.31 | 3.75 | 3.66 |
| 21-Mar-47 | 3.00 | 13,300 | 3.65 | -0.11 | -0.35 | 3.70 | 3.65 |
| 21-Jun-51 | 1.75 | 15,000 | 3.63 | -0.11 | -0.33 | 3.74 | 3.63 |