Summary: 10-year bond yields slightly lower in Australia, modestly higher in US, other major northern-hemisphere markets; ACGB 10-year spread to US Treasury yield narrows from +33ps to +27bps; AOFM issues $4.15 billion worth of bonds, notes.
Sovereign 10-year bond yields finished the week slightly lower in Australia but generally modestly higher in the US and other major northern-hemisphere markets.
Locally, long-term ACGB yields fell on the first two days of the week and then bounced midweek before dropping on Thursday and partially recovering on Friday. By this point, the 3-year ACGB yield had gained 2bps to 1.71%, the 10-year yield had lost 2bps to 2.24% while the 20-year yield finished 8bps lower at 2.66%. The spread between US and Australia 10-year Treasury bond yields tightened from +33bps to +27bps.
Over in the US, long-term bond yields moved higher over the first three days of the week before declining modestly on Thursday and holding steady on Friday.
The first notable reports of the US week were released on Tuesday night (AEDT).
IHS Markit’s latest flash reading of its composite index bounced from January’s final reading of 51.1 to 56.0, the manufacturing index increased from 55.5 to 57.5 and the services index gained 5.5 points to 56.7. “With growth rebounding sharply amid resurgent demand, and price pressures rising again to an all-time high, the survey will add to expectations of a more aggressive policy tightening by the FOMC,” said IHS Markit’s Chris Williamson.
The Conference Board’s February reading of its Consumer Sentiment Index was released at about the same time.
The weekly initial jobless claims report was released as usual on Thursday. Total claims amounted to 0.232 million for the week to Saturday 19 February, 17,000 fewer claims than in the previous week after revisions. As at 12 February, continuing claims (seasonally adjusted) totalled 1.476 million, a 112,000 fall from the previous week’s total after revisions.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation increased by 0.5% in January and by 5.2% on annual basis, up from December’s 4.9%.
By this point, the US 2-year Treasury bond yield had gained 10bps to 1.57% while 10-year and 30-year yields each finished 4bps higher at 1.97% and 2.28% respectively.
In major euro-zone markets, 10-year bond yields rose modestly in the early part of the week, then fell back on Wednesday and Thursday before partially recovering on Friday. Economic news tended to be overshadowed by news regarding Ukraine.
IHS Markit released its February flash PMI figures for the euro-zone at the very start of the week. The preliminary reading of the composite index was 55.8, up from January’s final reading of 52.3. “The euro-zone economy regained momentum in February as an easing of virus-fighting restrictions led to renewed demand for many consumer services, such as travel, tourism and recreation, and helped alleviate supply bottlenecks,” said IHS Markit’s Chris Williamson.
Germany’s ifo Institute released the February reading of its business climate index the next day. The index moved a little higher to a level slightly above the long-term average.
At the end of the week, the euro-zone’s Economic Sentiment Indicator (ESI) improved a little in February, rising from 112.7 to 114.0 and slightly above expectations. This indicator has a solid correlation with euro-zone GDP and it implies a year-to-February growth rate of 4.5%.
By this point, the German 10-year bund yield had gained 4bps to 0.23% and the French 10-year OAT yield had inched up 1bp to 0.70%. The Italian 10-year BTP yield slipped 1bp to 1.84% over the week while the British 10-year gilt yield finished 7bps higher at 1.37%.
The AOFM held three vanilla bond tenders as well as an inflation-linked bond (ILB) tender during the week. $500 million of June 2035s, $1 billion of May 2032s and $500 million of November 2029s were priced at yields of 2.35%, 2.29% and 2.16% respectively. The September 2025 ILB priced $150 million at a real yield of -1.14%.
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 $64.60 billion. There are currently $794.813 billion of Treasury bonds and $36.286 billion of Treasury index-linked bonds on issue after $5.121 billion matured on Monday. The next series to mature does so on 15 July when $24.763 billion worth of bonds are due. There are also $30.00 billion of short-term Treasury notes currently outstanding after $12.5 billion matured on Friday.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 0.36 | -0.02 | 0.00 | 0.38 | 0.35 |
| 21-Apr-23 | 5.50 | 34,200 | 0.68 | -0.02 | 0.07 | 0.70 | 0.66 |
| 21-Apr-24 | 2.75 | 34,400 | 1.20 | 0.01 | 0.31 | 1.20 | 1.17 |
| 21-Nov-24 | 0.25 | 38,600 | 1.53 | 0.02 | 0.38 | 1.53 | 1.48 |
| 21-Apr-25 | 3.25 | 38,100 | 1.66 | 0.02 | 0.29 | 1.66 | 1.61 |
| 21-Nov-25 | 0.25 | 22,000 | 1.81 | 0.03 | 0.33 | 1.81 | 1.75 |
| 21-Apr-26 | 4.25 | 37,100 | 1.84 | 0.02 | 0.31 | 1.84 | 1.79 |
| 21-Sep-26 | 0.50 | 32,800 | 1.92 | 0.02 | 0.31 | 1.92 | 1.86 |
| 21-Apr-27 | 4.75 | 33,900 | 1.95 | 0.02 | 0.31 | 1.95 | 1.89 |
| 21-Nov-27 | 2.75 | 29,700 | 2.02 | 0.01 | 0.32 | 2.02 | 1.96 |
| 21-May-28 | 2.25 | 29,700 | 2.06 | 0.00 | 0.33 | 2.06 | 1.99 |
| 21-Nov-28 | 2.75 | 32,600 | 2.09 | 0.00 | 0.32 | 2.09 | 2.01 |
| 21-Apr-29 | 3.25 | 33,000 | 2.11 | 0.00 | 0.32 | 2.11 | 2.03 |
| 21-Nov-29 | 2.75 | 32,900 | 2.14 | -0.01 | 0.32 | 2.14 | 2.07 |
| 21-May-30 | 2.50 | 36,600 | 2.16 | -0.01 | 0.30 | 2.16 | 2.09 |
| 21-Dec-30 | 1.00 | 24,700 | 2.20 | -0.01 | 0.30 | 2.20 | 2.12 |
| 21-Jun-31 | 1.50 | 36,300 | 2.21 | -0.01 | 0.30 | 2.21 | 2.13 |
| 21-Nov-31 | 1.00 | 21,000 | 2.22 | -0.01 | 0.30 | 2.22 | 2.14 |
| 21-May-32 | 1.25 | 32,200 | 2.23 | -0.02 | 0.30 | 2.23 | 2.15 |
| 21-Apr-33 | 4.50 | 19,800 | 2.24 | -0.02 | 0.29 | 2.24 | 2.16 |
| 21-Jun-35 | 2.75 | 9,550 | 2.36 | -0.04 | 0.26 | 2.37 | 2.29 |
| 21-Apr-37 | 3.75 | 12,000 | 2.44 | -0.06 | 0.23 | 2.47 | 2.38 |
| 21-Jun-39 | 3.25 | 9,900 | 2.56 | -0.08 | 0.22 | 2.61 | 2.51 |
| 21-May-41 | 2.75 | 13,500 | 2.63 | -0.09 | 0.18 | 2.69 | 2.59 |
| 21-Mar-47 | 3.00 | 13,300 | 2.72 | -0.09 | 0.18 | 2.75 | 2.68 |
| 21-Jun-51 | 1.75 | 15,000 | 2.73 | -0.09 | 0.17 | 2.78 | 2.68 |