Summary: 10-year bond yields jump in Australia; ACGB 10-year spread to US Treasury yield widens from +59bps to +98bps; 10-year bond yields up in the US, most major European markets; AOFM issues $3.1 billion worth of bonds, notes.
Locally, long-term ACGB yields started the week little changed but then ran up hard on Tuesday and Wednesday. After a partial reversal on Thursday, yields rose substantially at the end of the week. By this point, the 3-year ACGB yield had gained 49bps* to 3.92%, the 10-year yield had risen by 46bps* to 4.21% while the 20-year yield finished 42bps* higher at 4.42%. The spread between US and Australian 10-year Treasury bond yields widened from +59bps to +98bps.
* September futures
Over in the US, long-term bond yields started the week with a significant rise for two days which was followed by a partial pull-back over the next two days. Yields then moved modestly higher at the end of the week.
Producer price indices for May were released on Tuesday and they indicated the PPI had increased by 0.8% over the month. One economist said the figures did little to dampen inflation concerns.
May’s retail sales report was released on Wednesday morning. Total sales declined by 0.3% over the month, in contrast with expectations of a modest increase. Some economists interpreted the result as pointing to slowing consumer demand.
The FOMC’s two-day meeting ended later that day and a 75bps increase to its target range for the federal funds rate was announced. The decision was in line with expectations after May’s stronger-than-expected CPI result in the previous week.
US industrial production numbers for May were released at the end of the week. The figures were in line with expectations and they implied an annual GDP growth rate of 4.4%.
The Conference Board’s May reading of its Leading Index came out on the same day. The figure met expectations of a moderate decline.
By this point, the US 2-year Treasury bond yield had gained 12bps to 3.19%, the 10-year yield had added 7bps to 3.23% while the 30-year yield finished 9bps higher at 3.28%.
In major euro-zone markets, 10-year bond yields followed similar paths to their US counterpart for the first three days of the week but instead were higher on Thursday and lower on Friday. Italian bond yields moved somewhat differently
On Tuesday night (AEST), Germany’s ZEW June survey indicated its Economic Sentiment index rose from May’s reading of -34.3 to -28.0, slightly lower than the -26.8 which had been generally expected. ZEW’s current conditions index also increased from -36.5 to -27.6.
Midweek, the latest report on euro-zone industrial production showed it expanded by 0.4% in April, less than had been expected. It was also 2% lower than in April 2021.
Later that day, the ECB’s Governing Council held an unscheduled meeting and announced it is looking at propping up bonds issued by euro-zone countries where necessary by re-investing the proceeds of maturing bonds purchased under its Pandemic Emergency Purchase Programme. The ECB hopes “to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council.”
The BoE raised its Bank Rate by 25bps to 1.25% the next day.
By the end of the week, the German 10-year bund yield had gained 13bps to 1.65% while the French 10-year OAT yield had added 11bps to 2.20%. The Italian 10-year BTP yield lost 16bps to 3.58% over the week while the British 10-year gilt yield finished 6bps higher at 2.50%.
The AOFM held one vanilla bond tender and one indexed-linked bond tender during the week. $1 billion of May 2032s were priced at a yield of 4.12% while the $100 million of September 2030 ILBs were priced at a real yield of 1.49%.
There were also two Treasury note tenders which raised $2.0 billion on a short-term basis.
The gross value of all bonds issued by the AOFM in the 2021/2022 financial year-to-date (not taking into account buy-backs or short-term Treasury note tenders) is $100.5 billion. There are currently $827.913 billion of Treasury bonds and $37.086 billion of Treasury index-linked bonds on issue. The next series to mature does so on 15 July when $24.763 billion worth of bonds are due. There are also $27.25 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 2.02 | 0.38 | 0.72 | 2.02 | 1.81 |
| 21-Apr-23 | 5.50 | 34,200 | 2.83 | 0.51 | 0.86 | 2.83 | 2.58 |
| 21-Apr-24 | 2.75 | 35,900 | 3.31 | 0.56 | 0.76 | 3.31 | 3.08 |
| 21-Nov-24 | 0.25 | 40,600 | 3.48 | 0.55 | 0.76 | 3.50 | 3.26 |
| 21-Apr-25 | 3.25 | 39,100 | 3.63 | 0.51 | 0.81 | 3.69 | 3.45 |
| 21-Nov-25 | 0.25 | 22,000 | 3.73 | 0.48 | 0.81 | 3.81 | 3.58 |
| 21-Apr-26 | 4.25 | 38,100 | 3.76 | 0.48 | 0.81 | 3.84 | 3.59 |
| 21-Sep-26 | 0.50 | 34,600 | 3.80 | 0.48 | 0.80 | 3.88 | 3.64 |
| 21-Apr-27 | 4.75 | 34,600 | 3.83 | 0.48 | 0.79 | 3.91 | 3.67 |
| 21-Nov-27 | 2.75 | 30,700 | 3.89 | 0.48 | 0.78 | 3.97 | 3.73 |
| 21-May-28 | 2.25 | 29,700 | 3.92 | 0.45 | 0.75 | 4.02 | 3.77 |
| 21-Nov-28 | 2.75 | 32,600 | 3.95 | 0.45 | 0.75 | 4.05 | 3.80 |
| 21-Apr-29 | 3.25 | 33,000 | 3.98 | 0.44 | 0.75 | 4.08 | 3.83 |
| 21-Nov-29 | 2.75 | 33,400 | 4.02 | 0.44 | 0.74 | 4.12 | 3.87 |
| 21-May-30 | 2.50 | 37,100 | 4.06 | 0.44 | 0.75 | 4.15 | 3.90 |
| 21-Dec-30 | 1.00 | 24,700 | 4.10 | 0.45 | 0.75 | 4.18 | 3.93 |
| 21-Jun-31 | 1.50 | 38,100 | 4.12 | 0.46 | 0.74 | 4.19 | 3.94 |
| 21-Nov-31 | 1.00 | 21,000 | 4.12 | 0.46 | 0.73 | 4.20 | 3.95 |
| 21-May-32 | 1.25 | 35,200 | 4.13 | 0.45 | 0.73 | 4.20 | 3.95 |
| 21-Apr-33 | 4.50 | 19,800 | 4.15 | 0.46 | 0.73 | 4.22 | 3.97 |
| 21-Jun-35 | 2.75 | 9,550 | 4.25 | 0.45 | 0.70 | 4.30 | 4.05 |
| 21-Apr-37 | 3.75 | 12,000 | 4.28 | 0.43 | 0.67 | 4.32 | 4.08 |
| 21-Jun-39 | 3.25 | 10,300 | 4.34 | 0.43 | 0.65 | 4.37 | 4.13 |
| 21-May-41 | 2.75 | 13,500 | 4.38 | 0.41 | 0.63 | 4.39 | 4.17 |
| 21-Mar-47 | 3.00 | 13,300 | 4.40 | 0.40 | 0.61 | 4.41 | 4.18 |
| 21-Jun-51 | 1.75 | 15,000 | 4.35 | 0.39 | 0.59 | 4.36 | 4.14 |