Summary: 10-year bond yields up substantially in Australia, also up in the US, major European markets; ACGB 10-year spread to US Treasury yield widens from +29bps to +20bps; AOFM issues $1.0 billion worth of bonds.
Locally, long-term ACGB yields rose substantially each day for much of the week, with just the one pullback on Thursday. By the end of the week, the 3-year ACGB yield had jumped by 31bps to 3.17%, the 10-year yield had gained 34bps to 3.51% while the 20-year yield finished 37bps higher at 3.81%. The spread between US and Australian 10-year Treasury bond yields widened from +20bps to +37bps.
Over in the US, long-term bond yields rose moderately at the start of the week, only to fall back over the next two days. Rises in the last two days were substantial.
The first notable report of the US week was released on Monday. The ISM’s April Manufacturing PMI fell from 57.1 to 55.4, missing expectations. Apparently, labour shortages are not being resolved especially quickly.
March’s JOLTS report came out the next day. It indicated the US quit rate had ticked up back to its all-time high. Job openings and separations both increased.
Midweek, the ADP March report missed market expectations.
At the end of the week, April’s non-farm payrolls report produced a slightly-higher rise in employment than expected, with employment rising by 428,000. The jobless rate remained unchanged at 3.6% while the participation rate declined to 62.2%.
By this point, the US 2-year Treasury bond yield had returned to its starting point at 2.71%, the 10-year yield had gained 21bps to 3.14% while the 30-year yield finished 14bps higher at 3.14%.
In major euro-zone markets, 10-year bond yields once again followed a broadly-similar pattern to their US counterparts.
At the very start of the week, the euro-zone’s Economic Sentiment Indicator (ESI) declined again in April, falling from 106.7 to 105.0 and below expectations. This indicator has a solid correlation with euro-zone GDP and it implies a year-to-April growth rate of 2.6%.
On Thursday night, the Bank of England raised its official rate from 0.75% to 1.0%, as expected. The economic outlook of the UK was described as “bleak” by one local economist, with high inflation accompanying “a very sharp slowdown” later this year.
By the end of the week, the German 10-year bund yield had gained 19bps to 1.13% while the French 10-year OAT yield had added 21bps to 1.67%. The Italian 10-year BTP yield jumped by 37bps to 3.15% over the week and the British 10-year gilt yield finished 8bps higher at 1.99%.
The AOFM held one bond tender this week; $1 billion worth of November 2027s were priced at a yield of 3.30%. There were no Treasury note tenders.
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 $92.7 billion. There are currently $821.813 billion of Treasury bonds and $36.386 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 $28.00 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 1.46 | 0.30 | 0.91 | 1.59 | 1.19 |
| 21-Apr-23 | 5.50 | 34,200 | 2.15 | 0.31 | 1.10 | 2.39 | 1.89 |
| 21-Apr-24 | 2.75 | 35,900 | 2.73 | 0.29 | 0.89 | 2.88 | 2.55 |
| 21-Nov-24 | 0.25 | 40,600 | 2.91 | 0.32 | 0.72 | 3.03 | 2.72 |
| 21-Apr-25 | 3.25 | 38,100 | 2.98 | 0.27 | 0.61 | 3.12 | 2.82 |
| 21-Nov-25 | 0.25 | 22,000 | 3.12 | 0.31 | 0.60 | 3.23 | 2.92 |
| 21-Apr-26 | 4.25 | 38,100 | 3.11 | 0.28 | 0.56 | 3.25 | 2.94 |
| 21-Sep-26 | 0.50 | 33,800 | 3.16 | 0.28 | 0.55 | 3.29 | 2.99 |
| 21-Apr-27 | 4.75 | 33,900 | 3.17 | 0.28 | 0.54 | 3.31 | 3.02 |
| 21-Nov-27 | 2.75 | 29,700 | 3.23 | 0.28 | 0.55 | 3.36 | 3.07 |
| 21-May-28 | 2.25 | 29,700 | 3.27 | 0.28 | 0.57 | 3.40 | 3.10 |
| 21-Nov-28 | 2.75 | 32,600 | 3.29 | 0.28 | 0.57 | 3.42 | 3.13 |
| 21-Apr-29 | 3.25 | 33,000 | 3.31 | 0.29 | 0.58 | 3.44 | 3.14 |
| 21-Nov-29 | 2.75 | 33,400 | 3.34 | 0.30 | 0.59 | 3.46 | 3.17 |
| 21-May-30 | 2.50 | 37,100 | 3.36 | 0.30 | 0.60 | 3.48 | 3.19 |
| 21-Dec-30 | 1.00 | 24,700 | 3.44 | 0.34 | 0.64 | 3.51 | 3.23 |
| 21-Jun-31 | 1.50 | 37,300 | 3.45 | 0.35 | 0.65 | 3.52 | 3.24 |
| 21-Nov-31 | 1.00 | 21,000 | 3.46 | 0.35 | 0.65 | 3.53 | 3.25 |
| 21-May-32 | 1.25 | 33,200 | 3.47 | 0.35 | 0.64 | 3.54 | 3.26 |
| 21-Apr-33 | 4.50 | 19,800 | 3.48 | 0.35 | 0.64 | 3.56 | 3.27 |
| 21-Jun-35 | 2.75 | 9,550 | 3.54 | 0.32 | 0.60 | 3.65 | 3.36 |
| 21-Apr-37 | 3.75 | 12,000 | 3.61 | 0.33 | 0.60 | 3.71 | 3.42 |
| 21-Jun-39 | 3.25 | 10,300 | 3.69 | 0.34 | 0.60 | 3.78 | 3.49 |
| 21-May-41 | 2.75 | 13,500 | 3.75 | 0.34 | 0.60 | 3.83 | 3.55 |
| 21-Mar-47 | 3.00 | 13,300 | 3.79 | 0.34 | 0.56 | 3.87 | 3.70 |
| 21-Jun-51 | 1.75 | 15,000 | 3.77 | 0.33 | 0.54 | 3.86 | 3.58 |