Summary: 10-year bond yields modestly higher in Australia, most northern-hemisphere markets; ACGB 10-year spread to US Treasury yield widens from +18bps to +19bps; RBA buys $3.2 billion of various ACGBs, purchases now total $272.7 billion; AOFM issues $4 billion worth of bonds, notes.
Sovereign 10-year bond yields finished the week modestly higher in Australia and most of the northern-hemisphere markets.
Locally, long-term ACGB yields increased slightly over the first three days of the week before jumping on Thursday and then retracing on Friday. By this point, the 3-year ACGB yield had gained 9bps to 1.47%, the 10-year yield had added 2bps to 1.96% while the 20-year yield finished 1bp higher at 2.45%. The spread between US and Australia 10-year Treasury bond yields widened from +18bps to +19bps.
The RBA purchased another $3.2 billion worth of various ACGBs with maturities from November 2024 to April 2033 over the week. The RBA’s programme has now purchased $272.7 billion of bonds to date with a review set to take place next month.
Over in the US, long-term bond yields remained almost stable for the few couple of days before jumping on the day of the FOMC decision. Yields then fell back over the next two days.
There were a bunch of US economic reports released during the week, as well as a FOMC meeting.
IHS Markit released the latest flash readings of its various US PMIs on Monday night (AEST). The composite index dropped from December’s final reading of 57.0 to 50.8, the manufacturing index decreased from 57.7 to 55.0 and the services index lost 6.7 points to 50.9. IHS Markit’s Chris Williamson cited “worsening supply chain delays and staff shortages, with new restrictions to control the spread of Omicron adding to firms’ headwinds.”
The next day, The Conference Board’s January reading of its Consumer Sentiment Index declined modestly but again maintained its above-average level.
The results of the FOMC meeting were published on Wednesday (US time) and, as expected, no changes were made. However, comments from Jerome Powell made it clear a rate rise is probably coming in March, or April at the latest.
December quarter GDP figures were released a day later. Growth in the quarter was substantially higher than expected, boosted by a large increase in inventories.
The weekly initial jobless claims report was also released as usual. Total claims amounted to 0.260 million for the week to Saturday 22 January, 30,000 fewer claims than in the previous week after revisions. As at 15 January, continuing claims (seasonally adjusted) totalled 1.675 million, a 51,000 rise 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 December and by 4.9% on annual basis, up from November’s revised rate of 4.1%.
By this point, the US 2-year Treasury bond yield had gained 15bps to 1.16%, the 10-year yield had inched up 1bp to 1.77% while the 30-year yield finished 1bp lower at 2.07%.
In major euro-zone markets, 10-year bond yields declined at the start of the week before generally rising over the remainder of it.
IHS Markit released its January flash PMI figures for the euro-zone at the start of the week. The preliminary reading of the composite index was 52.4, down from December’s final reading of 53.3. IHS Markit’s Chris Williamson noted “another steep drop in spending on many consumer-facing services” but “so far the overall impact on the wider economy appears relatively muted…”
Germany’s ifo Institute released the January reading of its business climate index the next day. The index crept a little higher but remained slightly below the long-term average.
At the end of the week, the euro-zone’s Economic Sentiment Indicator (ESI) declined a little in January, registering a reading a little below expectations. This indicator has a solid correlation with euro-zone GDP and it implies a year-to-January growth rate of 4.1%.
By this point, the German 10-year bund yield had added 2bps to -0.05% and the French 10-year OAT yield had gained 4bps to 0.37%. The Italian 10-year BTP yield lost 2bps to 1.27% over the week while the British 10-year gilt yield finished 7bps higher at 1.17%.
The AOFM held two bond tenders during the week. $1 billion of September 2026s and $1 billion of May 2032s were priced at yields of 1.57% and 1.95% respectively. Their respective coverage ratios were 4.1 and 2.1.
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 $54.3 billion. There are currently $784.813 billion of Treasury bonds and $41.107 billion of Treasury index-linked bonds on issue. The next bond series to mature does so on 15 July when $24.763 billion worth of bonds are due. There are also $35.00 billion of short-term Treasury notes currently outstanding.
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Nov-22 | 2.25 | 26,500 | 0.36 | 0.03 | 0.14 | 0.40 | 0.35 |
| 21-Apr-23 | 5.50 | 34,200 | 0.62 | 0.05 | 0.27 | 0.66 | 0.58 |
| 21-Apr-24 | 2.75 | 34,400 | 0.95 | 0.10 | 0.30 | 0.99 | 0.86 |
| 21-Nov-24 | 0.25 | 37,600 | 1.23 | 0.11 | 0.30 | 1.28 | 1.15 |
| 21-Apr-25 | 3.25 | 37,100 | 1.41 | 0.09 | 0.31 | 1.47 | 1.33 |
| 21-Nov-25 | 0.25 | 22,000 | 1.53 | 0.08 | 0.30 | 1.60 | 1.48 |
| 21-Apr-26 | 4.25 | 37,100 | 1.56 | 0.08 | 0.29 | 1.63 | 1.50 |
| 21-Sep-26 | 0.50 | 32,800 | 1.63 | 0.07 | 0.30 | 1.71 | 1.58 |
| 21-Apr-27 | 4.75 | 33,900 | 1.65 | 0.06 | 0.29 | 1.73 | 1.61 |
| 21-Nov-27 | 2.75 | 29,700 | 1.72 | 0.06 | 0.28 | 1.79 | 1.67 |
| 21-May-28 | 2.25 | 29,700 | 1.75 | 0.06 | 0.29 | 1.83 | 1.71 |
| 21-Nov-28 | 2.75 | 32,100 | 1.78 | 0.04 | 0.29 | 1.85 | 1.74 |
| 21-Apr-29 | 3.25 | 33,000 | 1.80 | 0.04 | 0.29 | 1.88 | 1.77 |
| 21-Nov-29 | 2.75 | 32,900 | 1.84 | 0.03 | 0.28 | 1.91 | 1.81 |
| 21-May-30 | 2.50 | 36,600 | 1.86 | 0.03 | 0.29 | 1.94 | 1.84 |
| 21-Dec-30 | 1.00 | 24,700 | 1.90 | 0.02 | 0.28 | 1.98 | 1.89 |
| 21-Jun-31 | 1.50 | 36,300 | 1.91 | 0.02 | 0.29 | 1.99 | 1.90 |
| 21-Nov-31 | 1.00 | 21,000 | 1.92 | 0.02 | 0.29 | 2.00 | 1.92 |
| 21-May-32 | 1.25 | 30,200 | 1.94 | 0.02 | 0.28 | 2.02 | 1.93 |
| 21-Apr-33 | 4.50 | 18,800 | 1.95 | 0.02 | 0.28 | 2.03 | 1.95 |
| 21-Jun-35 | 2.75 | 9,050 | 2.09 | 0.01 | 0.24 | 2.18 | 2.09 |
| 21-Apr-37 | 3.75 | 12,000 | 2.20 | 0.01 | 0.21 | 2.29 | 2.20 |
| 21-Jun-39 | 3.25 | 9,900 | 2.32 | 0.01 | 0.18 | 2.41 | 2.32 |
| 21-May-41 | 2.75 | 13,000 | 2.42 | 0.00 | 0.18 | 2.52 | 2.42 |
| 21-Mar-47 | 3.00 | 13,300 | 2.52 | 0.01 | 0.17 | 2.61 | 2.52 |
| 21-Jun-51 | 1.75 | 15,000 | 2.52 | 0.00 | 0.17 | 2.62 | 2.52 |