Summary: 10-year bond yields a little higher in Australia, little changed in US, noticeably lower in other major northern-hemisphere markets; ACGB 10-year spread to US Treasury yield widens from +28ps to +33bps; AOFM issues $4.5 billion worth of bonds, notes.
Sovereign 10-year bond yields finished the week a little higher in Australia, little changed in the US but noticeably lower in other major northern-hemisphere markets.
Locally, long-term ACGB yields fell at the start of the week and again on Thursday but increased on the other three days. By the end of the week, the 3-year ACGB yield had lost 3bps to 1.69%, the 10-year yield had added 4bps to 2.26% while the 20-year yield finished 7bps higher at 2.74%. The spread between US and Australia 10-year Treasury bond yields widened from +28bps to +33bps.
Over in the US, long-term bond yields moved higher in the early part of the week before reversing course over the remainder of it.
There were a handful of notable US economic reports released during the week.
The first notable report of the US week was released on Tuesday night (AEDT). January’s PPI report produced a 1.0% rise over the month, double the expected increase. “Core” prices also increased by 1.0%
There were a couple of reports out midweek. US industrial production expanded in January but cold weather may have “flattered” the result. January’s retail sales report exceeded market expectations, although economists thought the numbers may have been clouded by unusual consumer behaviour.
The weekly initial jobless claims report was released as usual on Thursday. Total claims amounted to 0.248 million for the week to Saturday 12 February, 23,000 more claims than in the previous week after revisions. As at 5 February, continuing claims (seasonally adjusted) totalled 1.593 million, a 26,000 fall from the previous week’s total after revisions.
At the very end of the week, January’s increase in The Conference Board’s leading index undershot expectations, falling by 0.3%. However, the organisation still expects US GDP to grow by 3.5% over calendar 2022.
By this point, the US 2-year Treasury bond yield had shed 4bps to 1.47% while 10-year and 30-year yields each finished 1bp lower at 1.93% and 2.24% respectively.
In major euro-zone markets, 10-year bond yields see-sawed through of the week, with a bias towards the falls.
There were several notable euro-zone reports released during the week but markets were prone to distraction by news regarding Ukraine.
On Tuesday night (AEST), Germany’s ZEW February survey indicated its Economic Sentiment index had increased from January’s reading of 51.7 to 54.3, slightly under the 55.0 which had been generally expected. Its current conditions index also increased from -10.2 to -8.1.
Midweek, euro-zone industrial production expanded by 1.2% in December, noticeably larger than the modest increase which had been expected.
At the end of the week, February’s consumer sentiment survey indicated euro-zone consumers had yet again become slightly more cautious.
By this point, the German 10-year bund yield had shed 11bps to 0.19% and the French 10-year OAT yield had lost 7bps to 0.69%. The Italian 10-year BTP yield fell by 10bps to 1.85% over the week while the British 10-year gilt yield finished 17bps lower at 1.30%.
The AOFM held three vanilla bond tenders during the week. $1 billion of November 2028s, $1 billion of April 2033s and $1 billion of April 2025s were priced at yields of 1.99%, 2.26% and 1.58%.
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 $62.45 billion. There are currently $792.813 billion of Treasury bonds and $41.257 billion of Treasury index-linked bonds on issue. The next series to mature does so on 21 February when $5.121 billion worth of index-linked bonds are due. There are also $40.50 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 0.38 | -0.01 | 0.02 | 0.41 | 0.37 |
| 21-Apr-23 | 5.50 | 34,200 | 0.70 | -0.05 | 0.12 | 0.74 | 0.69 |
| 21-Apr-24 | 2.75 | 34,400 | 1.20 | 0.01 | 0.36 | 1.21 | 1.13 |
| 21-Nov-24 | 0.25 | 38,600 | 1.51 | 0.00 | 0.40 | 1.52 | 1.45 |
| 21-Apr-25 | 3.25 | 37,100 | 1.64 | -0.02 | 0.33 | 1.65 | 1.59 |
| 21-Nov-25 | 0.25 | 22,000 | 1.78 | -0.02 | 0.33 | 1.79 | 1.73 |
| 21-Apr-26 | 4.25 | 37,100 | 1.82 | -0.01 | 0.33 | 1.83 | 1.77 |
| 21-Sep-26 | 0.50 | 32,800 | 1.90 | 0.00 | 0.33 | 1.90 | 1.83 |
| 21-Apr-27 | 4.75 | 33,900 | 1.93 | 0.01 | 0.34 | 1.93 | 1.85 |
| 21-Nov-27 | 2.75 | 29,700 | 2.00 | 0.02 | 0.34 | 2.00 | 1.92 |
| 21-May-28 | 2.25 | 29,700 | 2.06 | 0.02 | 0.34 | 2.06 | 1.97 |
| 21-Nov-28 | 2.75 | 32,600 | 2.09 | 0.02 | 0.33 | 2.09 | 2.00 |
| 21-Apr-29 | 3.25 | 33,000 | 2.11 | 0.02 | 0.33 | 2.11 | 2.02 |
| 21-Nov-29 | 2.75 | 32,900 | 2.15 | 0.03 | 0.32 | 2.15 | 2.05 |
| 21-May-30 | 2.50 | 36,600 | 2.18 | 0.03 | 0.31 | 2.18 | 2.07 |
| 21-Dec-30 | 1.00 | 24,700 | 2.21 | 0.04 | 0.30 | 2.21 | 2.10 |
| 21-Jun-31 | 1.50 | 36,300 | 2.22 | 0.04 | 0.30 | 2.22 | 2.11 |
| 21-Nov-31 | 1.00 | 21,000 | 2.23 | 0.04 | 0.31 | 2.23 | 2.12 |
| 21-May-32 | 1.25 | 31,200 | 2.25 | 0.04 | 0.30 | 2.25 | 2.14 |
| 21-Apr-33 | 4.50 | 19,800 | 2.26 | 0.04 | 0.30 | 2.26 | 2.15 |
| 21-Jun-35 | 2.75 | 9,050 | 2.40 | 0.04 | 0.29 | 2.40 | 2.29 |
| 21-Apr-37 | 3.75 | 12,000 | 2.50 | 0.06 | 0.28 | 2.50 | 2.39 |
| 21-Jun-39 | 3.25 | 9,900 | 2.64 | 0.07 | 0.29 | 2.64 | 2.52 |
| 21-May-41 | 2.75 | 13,500 | 2.72 | 0.08 | 0.27 | 2.72 | 2.60 |
| 21-Mar-47 | 3.00 | 13,300 | 2.81 | 0.07 | 0.25 | 2.81 | 2.74 |
| 21-Jun-51 | 1.75 | 15,000 | 2.82 | 0.08 | 0.25 | 2.82 | 2.70 |