Summary: 10-year bond yields up in Australia, US, European markets; ACGB 10-year spread to US Treasury yield tightens from +31bps to +19bps; AOFM issues $16.6 billion worth of bonds, notes.
Locally, long-term ACGB yields rose over the first two days of the week before falling back over the remaining two days. By the end of the week, the 3-year ACGB yield had dropped by 19bps to 2.55%, the 10-year yield had returned to its starting point at 3.02% while the 20-year yield finished 8bps higher at 3.36%. The spread between US and Australian 10-year Treasury bond yields tightened from +31ps to +19bps.
Over in the US, long-term bond yields rose strongly on Monday, fell back over the next two days before rising strongly again at the end of the shortened week.
The first notable report of the US week was released on Tuesday night (AEDT). March’s CPI report produced another outsized increase but it was in line with expectations. As in February, “core” prices increased much more modestly.
March PPI figures were released the next day. “Pipeline” inflationary pressures “remain elevated.”
March’s retail sales report was released on Thursday. Sales grew by 0.5% over the month, in line with expectations, and by 6.9% over the year. Economists noted price rises seem to be the driving force behind the increase.
One of two major measures of US consumer sentiment was released at about the same time. The University of Michigan’s Consumer sentiment index rose from March’s final reading of 59.4 to 65.7, a reading which is still well under the long-term average and well into depressed territory.
US industrial production numbers for March were released at the end of the week. The figures were slightly better than expected and they implied an annual GDP growth rate of 4.3%.
By this point, the US 2-year Treasury bond yield had lost 7bps to 2.45%, the 10-year yield had gained 12bps to 2.83% while the 30-year yield finished 20bps higher at 2.92%.
In major euro-zone markets, 10-year bond yields followed a fairly similar pattern to their US counterparts.
There were few especially notable reports, although there was an ECB policy meeting.
On Tuesday night (AEST), Germany’s ZEW April survey indicated its Economic Sentiment index declined from March’s reading of 39.3 to -41.0, above the -48.5 which had been generally expected. Its current conditions index fell from -21.4 to -30.8.
The ECB left its various policy rates unchanged, as expected, on Thursday. However, there was no mention of a definitive date for the cessation of its Asset Purchase Programme, leaving the door open for a delay in raising said rates.
By the end of the week, the German 10-year bund yield had gained 14bps to 0.84% while the French 10-year OAT yield had gained 8bps to 1.34%. The Italian 10-year BTP yield rose by 10bps to 2.47% over the week while the British 10-year gilt yield finished 14bps higher at 1.89%.
The AOFM held just the one bond index-lined bond (ILB) tender during the week but it was supplemented by a large sale by syndication of a new line of Treasury bonds. $100 million of August 2040 ILBs were priced at a real yield of 0.83% and $15 billion of November 2033s were price at a (nominal) yield of 3.14%.
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 $90.7 billion. There are currently $819.813 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 $32.50 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 0.70 | -0.03 | 0.28 | 0.75 | 0.70 |
| 21-Apr-23 | 5.50 | 34,200 | 1.26 | -0.07 | 0.51 | 1.35 | 1.26 |
| 21-Apr-24 | 2.75 | 35,900 | 2.02 | -0.10 | 0.72 | 2.18 | 2.02 |
| 21-Nov-24 | 0.25 | 40,600 | 2.23 | -0.12 | 0.56 | 2.40 | 2.23 |
| 21-Apr-25 | 3.25 | 38,100 | 2.37 | -0.16 | 0.57 | 2.55 | 2.37 |
| 21-Nov-25 | 0.25 | 22,000 | 2.50 | -0.15 | 0.54 | 2.68 | 2.50 |
| 21-Apr-26 | 4.25 | 38,100 | 2.53 | -0.15 | 0.54 | 2.71 | 2.53 |
| 21-Sep-26 | 0.50 | 32,800 | 2.60 | -0.14 | 0.54 | 2.77 | 2.60 |
| 21-Apr-27 | 4.75 | 33,900 | 2.62 | -0.13 | 0.52 | 2.80 | 2.62 |
| 21-Nov-27 | 2.75 | 29,700 | 2.69 | -0.11 | 0.53 | 2.86 | 2.69 |
| 21-May-28 | 2.25 | 29,700 | 2.75 | -0.06 | 0.55 | 2.90 | 2.75 |
| 21-Nov-28 | 2.75 | 32,600 | 2.79 | -0.05 | 0.55 | 2.93 | 2.79 |
| 21-Apr-29 | 3.25 | 33,000 | 2.81 | -0.04 | 0.56 | 2.95 | 2.81 |
| 21-Nov-29 | 2.75 | 33,400 | 2.85 | -0.02 | 0.57 | 2.99 | 2.85 |
| 21-May-30 | 2.50 | 37,100 | 2.89 | -0.01 | 0.57 | 3.02 | 2.89 |
| 21-Dec-30 | 1.00 | 24,700 | 2.93 | 0.04 | 0.57 | 3.05 | 2.93 |
| 21-Jun-31 | 1.50 | 37,300 | 2.94 | 0.05 | 0.57 | 3.06 | 2.94 |
| 21-Nov-31 | 1.00 | 21,000 | 2.96 | 0.06 | 0.57 | 3.07 | 2.96 |
| 21-May-32 | 1.25 | 33,200 | 2.97 | 0.06 | 0.57 | 3.08 | 2.97 |
| 21-Apr-33 | 4.50 | 19,800 | 2.98 | 0.06 | 0.57 | 3.09 | 2.98 |
| 21-Jun-35 | 2.75 | 9,550 | 3.10 | 0.05 | 0.58 | 3.19 | 3.10 |
| 21-Apr-37 | 3.75 | 12,000 | 3.16 | 0.06 | 0.56 | 3.25 | 3.16 |
| 21-Jun-39 | 3.25 | 10,300 | 3.25 | 0.08 | 0.52 | 3.33 | 3.24 |
| 21-May-41 | 2.75 | 13,500 | 3.33 | 0.12 | 0.52 | 3.38 | 3.29 |
| 21-Mar-47 | 3.00 | 13,300 | 3.39 | 0.11 | 0.48 | 3.45 | 3.35 |
| 21-Jun-51 | 1.75 | 15,000 | 3.39 | 0.11 | 0.46 | 3.45 | 3.35 |