Summary: 10-year bond yields down in Australia, the US, up a little in most major European markets; ACGB 10-year spread to US Treasury yield widens from +52bps to +55bps; AOFM issues $2.75 billion worth of bonds, notes.
Locally, long-term ACGB yields rose at the very start of the week, then fell over the next three days before rising modestly on Friday. By this point, 3-year and 10-year ACGB yields had both lost 6bps to 2.84% and 3.27% while the 20-year yield finished 11bps lower at 3.60%. The spread between US and Australian 10-year Treasury bond yields tightened from +55bps to +53bps.
Over in the US, long-term bond yields fell noticeably at the start of the week only to bounce the next day. Little movement took place over the remainder of the week.
IHS Markit’s latest flash reading of its composite index was released on Tuesday, with index falling from April’s final reading of 56.0 to 53.8. The manufacturing index declined from 59.2 to 57.5 and the services index lost 2.1 points to 53.5. IHS Markit’s Chris Williamson said the figures “remain indicative of the economy growing at an annualised rate of 2%” although “cost pressures have risen to a new survey high…”
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation increased by 0.3% in April and by 4.9% on annual basis, down from 5.2% in March.
By this stage, the US 2-year Treasury bond yield had shed 11bps to 2.46%, the 10-year yield had lost 4bps to 2.74% while the 30-year yield finished 2bps lower at 2.97%.
In major euro-zone markets, 10-year bond yields followed a broadly-similar pattern to their US counterparts.
Germany’s ifo Institute released the May reading of its business climate index at the very start of the week. The index increased modestly as German firms’ views of current conditions improved despite being sceptical of the outlook.
IHS Markit released its May flash PMI figures for the euro-zone the next day. The preliminary reading of the composite index was 54.9, down from April’s final reading of 55.8. IHS Markit’s Chris Williamson described euro-zone growth as “encouragingly resilient” but noted the manufacturing sector as “beleaguered” while the services sector was “buoyant”. He noted the presence of pent-up demand “for services as pandemic-related restrictions are wound down.”
By the end of the week, the German 10-year bund yield had added 2bps to 0.96% while the French 10-year OAT yield had returned to its starting point at 1.47%. The Italian 10-year BTP yield lost 7bps to 2.90% over the week while the British 10-year gilt yield finished 3bps higher at 1.92%.
The AOFM held two vanilla bond tenders as well as an inflation-linked bond (ILB) tender during the week. $300 million of June 2051s and $800 million of June 2031s were priced at yields of 3.59% and 3.22% respectively. The November 2032 ILB tender priced $150 million at a real yield of 0.87%.
There were also two Treasury note tenders which raised $1.5 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 $97.3 billion. There are currently $825.213 billion of Treasury bonds and $36.986 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 $24.75 billion of short-term Treasury notes currently outstanding after $3.25 billion matured on Friday.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 1.32 | 0.04 | 0.32 | 1.32 | 1.28 |
| 21-Apr-23 | 5.50 | 34,200 | 1.90 | -0.02 | 0.25 | 1.95 | 1.88 |
| 21-Apr-24 | 2.75 | 35,900 | 2.39 | -0.09 | 0.01 | 2.50 | 2.38 |
| 21-Nov-24 | 0.25 | 40,600 | 2.62 | -0.07 | 0.06 | 2.71 | 2.60 |
| 21-Apr-25 | 3.25 | 38,100 | 2.74 | -0.06 | 0.04 | 2.82 | 2.72 |
| 21-Nov-25 | 0.25 | 22,000 | 2.86 | -0.03 | 0.05 | 2.93 | 2.83 |
| 21-Apr-26 | 4.25 | 38,100 | 2.88 | -0.04 | 0.04 | 2.95 | 2.86 |
| 21-Sep-26 | 0.50 | 33,800 | 2.93 | -0.04 | 0.03 | 3.00 | 2.91 |
| 21-Apr-27 | 4.75 | 34,600 | 2.95 | -0.05 | 0.03 | 3.03 | 2.93 |
| 21-Nov-27 | 2.75 | 30,700 | 3.01 | -0.05 | 0.04 | 3.09 | 2.99 |
| 21-May-28 | 2.25 | 29,700 | 3.06 | -0.06 | 0.05 | 3.14 | 3.03 |
| 21-Nov-28 | 2.75 | 32,600 | 3.08 | -0.06 | 0.06 | 3.17 | 3.06 |
| 21-Apr-29 | 3.25 | 33,000 | 3.10 | -0.07 | 0.06 | 3.20 | 3.08 |
| 21-Nov-29 | 2.75 | 33,400 | 3.14 | -0.07 | 0.08 | 3.23 | 3.11 |
| 21-May-30 | 2.50 | 37,100 | 3.16 | -0.08 | 0.09 | 3.26 | 3.14 |
| 21-Dec-30 | 1.00 | 24,700 | 3.22 | -0.05 | 0.12 | 3.29 | 3.17 |
| 21-Jun-31 | 1.50 | 37,300 | 3.23 | -0.06 | 0.12 | 3.31 | 3.18 |
| 21-Nov-31 | 1.00 | 21,000 | 3.24 | -0.06 | 0.12 | 3.31 | 3.19 |
| 21-May-32 | 1.25 | 34,200 | 3.25 | -0.06 | 0.13 | 3.33 | 3.20 |
| 21-Apr-33 | 4.50 | 19,800 | 3.27 | -0.06 | 0.13 | 3.35 | 3.22 |
| 21-Jun-35 | 2.75 | 9,550 | 3.36 | -0.09 | 0.11 | 3.48 | 3.34 |
| 21-Apr-37 | 3.75 | 12,000 | 3.43 | -0.11 | 0.11 | 3.54 | 3.40 |
| 21-Jun-39 | 3.25 | 10,300 | 3.51 | -0.12 | 0.10 | 3.63 | 3.48 |
| 21-May-41 | 2.75 | 13,500 | 3.56 | -0.13 | 0.09 | 3.69 | 3.53 |
| 21-Mar-47 | 3.00 | 13,300 | 3.58 | -0.14 | 0.06 | 3.70 | 3.55 |
| 21-Jun-51 | 1.75 | 15,000 | 3.55 | -0.14 | 0.04 | 3.69 | 3.52 |