Government

Summary: 10-year bond yields up in Australia, down in the US, UK, Germany; ACGB 10-year spread to US Treasury yield widens from +36bps to +51bps; AOFM issues $3.9 billion worth of bonds, notes.

Locally, long-term ACGB yields jumped at the start of the week following large rises in the US on Friday night. An almost-equally large fall took place midweek which was then followed by a moderate bounce and a small fall over the next days. By the end of the week, the 3-year ACGB yield had gained 14bps to 2.60%, the 10-year yield had increased by 5bps to 2.89% while the 20-year yield finished 4bps higher at 3.20%. The spread between US and Australian 10-year Treasury bond yields widened from +36ps to +51bps.

Over in the US, long-term bond yields fell steadily each day until the end of the week when they rose modestly.

There was a swag of notable data releases in the US during the week.

The first notable report of the US week was released on Tuesday. February’s JOLTS report indicated the US quit rate had ticked up, close to its all-time high. Job openings fell while total separations rose.

The Conference Board’s March reading of its Consumer Sentiment Index was released at about the same time. It improved a little and apparently it is holding up “remarkably well”.

Midweek, the ADP March report beat market expectations.

The next day, the latest report on personal consumption expenditures indicated core PCE price inflation increased by 0.4% in February and by 5.4% on annual basis, up from 5.2% in January.

The weekly initial jobless claims report was also released on the same day. Total claims amounted to 0.202 million for the week to Saturday 26 March, 14,000 more claims than in the previous week after revisions. As at 19 March, continuing claims (seasonally adjusted) totalled 1.307 million, a 35,000 fall from the previous week’s total after revisions.

At the end of the week, March’s non-farm payrolls report produced a lower rise in employment than expected, with employment rising by 431,000. The jobless rate fell from 3.8% to 3.6% and the participation rate ticked up to 62.4%.

The ISM’s March Manufacturing PMI report was released around the same time. The index declined from 58.6 to 57.1, missing expectations.

By this point, the US 2-year Treasury bond yield had increased by 18bps to 2.46%, the 10-year yield had shed 10bps to 2.38% while the 30-year yield finished 15bps lower at 2.44%.

In major euro-zone markets, 10-year bond yields rose through the week with the exception of Thursday when they dropped significantly.

Midweek, the euro-zone’s Economic Sentiment Indicator (ESI) declined in March, falling from 114.0 to 108.5 and below expectations. This indicator has a solid correlation with euro-zone GDP and it implies a year-to-March growth rate of 3.3%.

Eurozone unemployment figures were released a day later. The jobless rate ticked down from February’s revised figure of 6.9% to 6.8%, a series-low.

At the end of the week, the “flash” March consumer price index (CPI) report produced an annual inflation rate of 7.5% in the euro-zone, above expectations and substantially higher than February’s final reading of 5.9%. Core annual CPI increased from 2.7% to 3.0%.

By this point, the German 10-year bund yield had shed 4bps to 0.55% while the French 10-year OAT yield had gained 2bps to 1.03%. The Italian 10-year BTP yield rose by 3bps to 2.11% over the week while the British 10-year gilt yield finished 8bps lower at 1.61%.

Germany’s ifo Institute released the March reading of its business climate index at the very end of the week. The index fell considerably as companies’ views of current conditions deteriorated noticeably.

By this point, the German 10-year bund yield had increased by 22bps to 0.59% and the French 10-year OAT yield had gained 18bps to 1.01%. The Italian 10-year BTP yield rose by 20bps to 2.08% over the week while the British 10-year gilt yield finished 19bps higher at 1.69%.

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The AOFM held two bond tenders during the week. $1.5 billion of April 2024s and $400 million of June 2051s were priced at yields of 1.92% and 3.21% respectively.

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 $75.1 billion. There are currently $804.313 billion of Treasury bonds and $36.286 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 $29.00 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	0.55	0.05	0.19	0.61	0.55
21-Apr-23	5.50	34,200	1.05	0.14	0.37	1.12	1.03
21-Apr-24	2.75	35,900	1.84	0.26	0.64	1.92	1.80
21-Nov-24	0.25	40,600	2.19	0.16	0.66	2.29	2.15
21-Apr-25	3.25	38,100	2.37	0.16	0.71	2.47	2.33
21-Nov-25	0.25	22,000	2.52	0.15	0.71	2.62	2.48
21-Apr-26	4.25	38,100	2.55	0.14	0.70	2.65	2.51
21-Sep-26	0.50	32,800	2.61	0.14	0.69	2.71	2.58
21-Apr-27	4.75	33,900	2.63	0.13	0.68	2.73	2.60
21-Nov-27	2.75	29,700	2.68	0.12	0.66	2.77	2.65
21-May-28	2.25	29,700	2.70	0.11	0.64	2.78	2.67
21-Nov-28	2.75	32,600	2.72	0.10	0.63	2.79	2.69
21-Apr-29	3.25	33,000	2.73	0.09	0.63	2.81	2.70
21-Nov-29	2.75	33,400	2.75	0.08	0.61	2.82	2.72
21-May-30	2.50	36,600	2.77	0.06	0.61	2.84	2.73
21-Dec-30	1.00	24,700	2.79	0.06	0.60	2.87	2.76
21-Jun-31	1.50	37,300	2.80	0.05	0.60	2.87	2.77
21-Nov-31	1.00	21,000	2.82	0.05	0.60	2.89	2.78
21-May-32	1.25	33,200	2.82	0.05	0.59	2.90	2.79
21-Apr-33	4.50	19,800	2.84	0.05	0.60	2.91	2.80
21-Jun-35	2.75	9,550	2.94	0.05	0.58	3.01	2.90
21-Apr-37	3.75	12,000	3.01	0.06	0.57	3.06	2.96
21-Jun-39	3.25	10,300	3.09	0.05	0.54	3.15	3.04
21-May-41	2.75	13,500	3.16	0.04	0.52	3.21	3.10
21-Mar-47	3.00	13,300	3.23	0.04	0.50	3.25	3.18
21-Jun-51	1.75	15,000	3.23	0.04	0.51	3.28	3.18