Summary: 10-year bond yields up in Australia, the US, other major northern-hemisphere markets; ACGB 10-year spread to US Treasury yield widens from +46bps to +49bps; AOFM issues $4.5 billion worth of bonds, notes.
Locally, long-term ACGB yields rose through most of the week with just a small decline on Wednesday. By the end of it, the 3-year ACGB yield had gained 10bps to 2.16%*, the 10-year yield had increased by 18bps to 2.64%* while the 20-year yield finished 15bps higher at 3.02%*. The spread between US and Australian* 10-year Treasury bond yields widened from +46bps to +49bps.
* June futures
Over in the US, long-term bond yields jumped at the start of the week, rose modestly over the next two days before easing on Thursday and Friday.
The first notable report of the US week was released on Tuesday night (AEDT). February’s PPI report produced a 0.8% rise over the month, slightly less than expectations but over 10% on an annual basis. “Core” prices increased much more modestly.
The next day, February’s retail sales report undershot market expectations.
A little later in the day, the US Fed’s FOMC raised its target range for the federal funds rate by 25bps to 0.25% to 0.50%. The move was widely expected and further rises are expected at pretty much all of the FOMC’s meetings in 2022.
US industrial production numbers for February were released on Thursday. The figures were in line with forecasts but a shortage of semi-conductors still seems to be hampering vehicle production.
The weekly initial jobless claims report was also released. Total claims amounted to 0.214 million for the week to Saturday 12 March, 15,000 fewer claims than in the previous week after revisions. As at 5 March, continuing claims (seasonally adjusted) totalled 1.419 million, a 71,000 fall from the previous week’s total after revisions.
At the end of the week, February’s increase in The Conference Board’s leading index met expectations, rising by 0.3%. However, The Conference Board stated its concerns the US economy is facing headwinds.
By this point, the US 2-year Treasury bond yield had increased by 19bps to 1.94%, the 10-year yield had gained 15bps to 2.15% while the 30-year yield finished 7bps higher at 2.43%.
In major euro-zone markets, 10-year bond yields also jumped at the start of the week but then reversed course before stabilising over the remaining days.
Euro-zone industrial production in January missed expectations on Tuesday, remaining unchanged over the month. Germany and French output expanded but Spanish output contract while Italian output was flat.
At about the same time, Germany’s ZEW March survey indicated its Economic Sentiment index plummeted from February’s reading of 54.3 to -39.3, welly under the +5.0 which had been generally expected. Its current conditions index fell from -8.1 to -21.4.
On Wednesday night, the Bank of England’s MPC raised its official rate by 25bps to 0.75%.
By the end of the week, the German 10-year bund yield had increased by 12bps to 0.37% and the French 10-year OAT yield had gained 9bps to 0.83%. The Italian 10-year BTP yield added 2bps to 1.88% over the week while the British 10-year gilt yield finished 1bp higher at 1.50%.
The AOFM held two bond tenders during the week. $1 billion of May 2032s and $1 billion of April 2026s were priced at yields of 2.49% and 2.10% respectively.
There were also two Treasury note tenders which raised $2.5 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 $70.90 billion. There are currently $800.113 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 $37.00 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 0.48 | 0.06 | 0.08 | 0.48 | 0.43 |
| 21-Apr-23 | 5.50 | 34,200 | 0.82 | 0.07 | 0.08 | 0.82 | 0.75 |
| 21-Apr-24 | 2.75 | 34,400 | 1.40 | 0.10 | 0.21 | 1.40 | 1.29 |
| 21-Nov-24 | 0.25 | 39,600 | 1.77 | 0.10 | 0.26 | 1.77 | 1.66 |
| 21-Apr-25 | 3.25 | 38,100 | 1.93 | 0.13 | 0.26 | 1.93 | 1.81 |
| 21-Nov-25 | 0.25 | 22,000 | 2.08 | 0.12 | 0.28 | 2.08 | 1.96 |
| 21-Apr-26 | 4.25 | 37,100 | 2.13 | 0.14 | 0.29 | 2.13 | 2.01 |
| 21-Sep-26 | 0.50 | 32,800 | 2.20 | 0.14 | 0.31 | 2.20 | 2.10 |
| 21-Apr-27 | 4.75 | 33,900 | 2.24 | 0.14 | 0.32 | 2.24 | 2.14 |
| 21-Nov-27 | 2.75 | 29,700 | 2.31 | 0.15 | 0.32 | 2.31 | 2.21 |
| 21-May-28 | 2.25 | 29,700 | 2.36 | 0.15 | 0.32 | 2.36 | 2.27 |
| 21-Nov-28 | 2.75 | 32,600 | 2.39 | 0.16 | 0.33 | 2.39 | 2.30 |
| 21-Apr-29 | 3.25 | 33,000 | 2.42 | 0.17 | 0.34 | 2.42 | 2.32 |
| 21-Nov-29 | 2.75 | 33,400 | 2.46 | 0.17 | 0.34 | 2.46 | 2.36 |
| 21-May-30 | 2.50 | 36,600 | 2.50 | 0.18 | 0.35 | 2.50 | 2.38 |
| 21-Dec-30 | 1.00 | 24,700 | 2.53 | 0.17 | 0.36 | 2.53 | 2.42 |
| 21-Jun-31 | 1.50 | 37,300 | 2.55 | 0.17 | 0.37 | 2.55 | 2.43 |
| 21-Nov-31 | 1.00 | 21,000 | 2.56 | 0.17 | 0.36 | 2.56 | 2.44 |
| 21-May-32 | 1.25 | 33,200 | 2.58 | 0.18 | 0.37 | 2.58 | 2.46 |
| 21-Apr-33 | 4.50 | 19,800 | 2.59 | 0.18 | 0.37 | 2.59 | 2.47 |
| 21-Jun-35 | 2.75 | 9,550 | 2.70 | 0.18 | 0.35 | 2.70 | 2.59 |
| 21-Apr-37 | 3.75 | 12,000 | 2.78 | 0.18 | 0.33 | 2.78 | 2.66 |
| 21-Jun-39 | 3.25 | 9,900 | 2.88 | 0.16 | 0.32 | 2.88 | 2.79 |
| 21-May-41 | 2.75 | 13,500 | 2.96 | 0.15 | 0.32 | 2.96 | 2.87 |
| 21-Mar-47 | 3.00 | 13,300 | 3.05 | 0.13 | 0.31 | 3.05 | 2.98 |
| 21-Jun-51 | 1.75 | 15,000 | 3.05 | 0.13 | 0.31 | 3.05 | 2.98 |