Summary: 10-year bond yields moderately lower in Australia, substantially lower in US, other major northern-hemisphere markets; ACGB 10-year spread to US Treasury yield widens from +27ps to +43bps; AOFM issues $4.3 billion worth of bonds, notes.
Sovereign 10-year bond yields finished the week moderately lower in Australia but substantially lower in the US and other major northern-hemisphere markets.
Locally, long-term ACGB yields see-sawed through the week, with some big falls on Monday and Wednesday only partially offset by bounces on Tuesday and Thursday. By the end of the week, the 3-year ACGB yield had shed 13bps to 1.58%, the 10-year yield had lost 8bps to 2.16% while the 20-year yield finished 2bps lower at 2.64%. The spread between US and Australia 10-year Treasury bond yields widened from +27bps to +43bps.
Over in the US, long-term bond yields fell heavily in the early part of the week, bounced midweek and then resumed falling for the remainder of the week.
The ISM’s February Manufacturing PMI report was released on Tuesday. The index moved a touch higher, slightly exceeding expectations. The US manufacturing sector “remains in a demand-driven, supply chain-constrained environment” according to the ISM.
Midweek, the ADP February report also beat market expectations but what was truly remarkable was the radically upward revision of January’s figures.
On Thursday, the ISM’s services activity index declined from 59.9 to 56.5 in February, significantly below the 61.1 which had been generally expected.
The weekly initial jobless claims report was also released. Total claims amounted to 0.215 million for the week to Saturday 26 February, 18,000 fewer claims than in the previous week after revisions. As at 19 February, continuing claims (seasonally adjusted) totalled 1.476 million, a 2,000 rise from the previous week’s total after revisions.
At the end of the week, February’s non-farm payrolls report produced a much higher rise in employment than expected, with employment rising by 678,000. The jobless rate fell from 4.0% to 3.8% even as the participation rate ticked up to 62.3%.
By this point, the US 2-year Treasury bond yield had lost 9bps to 1.48%, the 10-year yield had dropped 24bps to 1.73% while the 30-year yield finished 12bps lower at 2.16%.
In major euro-zone markets, 10-year bond yields were smacked lower in the early part of the week but then partially recovered midweek, only to fall again in the latter part of the week.
Midweek, the “flash” February consumer price index (CPI) report produced an annual inflation rate of 5.8% in the euro-zone, above expectations and noticeably higher than January’s final reading of 5.1%. Core annual CPI increased from 2.3% to 2.7%.
Eurozone unemployment figures were released at the same time. The jobless rate fell from January’s 7.0% to 6.8%, a new series-low.
By the end of the week, the German 10-year bund yield had dropped 30bps to -0.07% and the French 10-year OAT yield had shed 29bps to 0.41%. The Italian 10-year BTP yield lost 32bps to 1.52% over the week while the British 10-year gilt yield finished 16bps lower at 1.21%.
The AOFM held three vanilla bond tenders during the week. $1 billion of November 2025s, $300 million of June 2051s and $1 billion of June 2031s were priced at yields of 1.72%, 2.63% and 2.16% respectively.
There were also two Treasury note tenders which raised $2 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 $66.90 billion. There are currently $797.113 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 $32.00 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 0.36 | 0.00 | 0.00 | 0.36 | 0.30 |
| 21-Apr-23 | 5.50 | 34,200 | 0.59 | -0.09 | -0.03 | 0.59 | 0.56 |
| 21-Apr-24 | 2.75 | 34,400 | 1.11 | -0.09 | 0.16 | 1.11 | 1.09 |
| 21-Nov-24 | 0.25 | 38,600 | 1.43 | -0.10 | 0.21 | 1.43 | 1.40 |
| 21-Apr-25 | 3.25 | 38,100 | 1.55 | -0.11 | 0.14 | 1.55 | 1.54 |
| 21-Nov-25 | 0.25 | 22,000 | 1.70 | -0.11 | 0.17 | 1.70 | 1.68 |
| 21-Apr-26 | 4.25 | 37,100 | 1.73 | -0.11 | 0.17 | 1.73 | 1.72 |
| 21-Sep-26 | 0.50 | 32,800 | 1.81 | -0.11 | 0.18 | 1.81 | 1.80 |
| 21-Apr-27 | 4.75 | 33,900 | 1.85 | -0.10 | 0.19 | 1.85 | 1.84 |
| 21-Nov-27 | 2.75 | 29,700 | 1.92 | -0.10 | 0.20 | 1.92 | 1.91 |
| 21-May-28 | 2.25 | 29,700 | 1.96 | -0.10 | 0.21 | 1.97 | 1.95 |
| 21-Nov-28 | 2.75 | 32,600 | 1.99 | -0.09 | 0.21 | 2.00 | 1.98 |
| 21-Apr-29 | 3.25 | 33,000 | 2.01 | -0.09 | 0.21 | 2.02 | 2.00 |
| 21-Nov-29 | 2.75 | 33,400 | 2.05 | -0.09 | 0.22 | 2.06 | 2.04 |
| 21-May-30 | 2.50 | 36,600 | 2.08 | -0.08 | 0.22 | 2.09 | 2.06 |
| 21-Dec-30 | 1.00 | 24,700 | 2.11 | -0.08 | 0.22 | 2.12 | 2.10 |
| 21-Jun-31 | 1.50 | 36,300 | 2.12 | -0.08 | 0.21 | 2.14 | 2.11 |
| 21-Nov-31 | 1.00 | 21,000 | 2.14 | -0.08 | 0.22 | 2.15 | 2.13 |
| 21-May-32 | 1.25 | 32,200 | 2.15 | -0.08 | 0.21 | 2.16 | 2.14 |
| 21-Apr-33 | 4.50 | 19,800 | 2.16 | -0.08 | 0.21 | 2.18 | 2.15 |
| 21-Jun-35 | 2.75 | 9,550 | 2.30 | -0.06 | 0.21 | 2.31 | 2.27 |
| 21-Apr-37 | 3.75 | 12,000 | 2.39 | -0.05 | 0.20 | 2.39 | 2.34 |
| 21-Jun-39 | 3.25 | 9,900 | 2.53 | -0.03 | 0.20 | 2.53 | 2.46 |
| 21-May-41 | 2.75 | 13,500 | 2.61 | -0.03 | 0.19 | 2.61 | 2.53 |
| 21-Mar-47 | 3.00 | 13,300 | 2.70 | -0.02 | 0.19 | 2.70 | 2.65 |
| 21-Jun-51 | 1.75 | 15,000 | 2.71 | -0.01 | 0.19 | 2.71 | 2.62 |