Summary: ACGB bond yields generally rise in Australia; ACGB 10-year spread to US Treasury yield rises to +12bps; 10-year bond yields down in US, major European markets; $13.6 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields started the week with a modest rise which was followed the next day with aLocally, long-term ACGB yields started with a couple of days of modest rises which were followed by a couple more days of modest falls and a quiet day at the end of the week. By this point, the 3-year ACGB yield had lost 2bps to 3.95% while 10-year and 20-year yields both finished 3bps higher at 4.32% and 4.67% respectively. The spread between US and Australian 10-year Treasury bond yields increased from +5bps to +12bps.
Over in the US, 10-year bond yields generally increased modestly each day before falling moderately on both of the last two days of the week.
S&P Global Market Intelligence’s flash July reading of its US composite index came out midweek, posting a small rise from 54.8 in June to 55.0. The manufacturing index decreased from 51.6 to 49.5 while the services index increased from 55.3 to 56.0. S&P Global Market Intelligence Chief Business Economist Chris Williamson said the figures “signal a ‘Goldilocks’ scenario at the start of the third quarter, with the economy growing at a robust pace while inflation moderates.”
June quarter GDP figures were released the next day. The US economy expanded at an annualised rate of 2.8%, more than expected, and the annual growth rate accelerated from 2.9% in the previous quarter to 3.1%.
The latest report on personal consumption expenditures was released at the end of the week. Core PCE price inflation increased by 0.2% in June and by 2.6% on an annual basis, unchanged from May’s comparable figure.
The New York Fed’s Nowcast model was also updated as usual. The June 2024 quarter forecast remained unchanged at 2.0% (annualised), as did the September 2024 quarter forecast rose at 2.70%.
By this point, the US 2-year Treasury bond yield had shed 13bps to 4.38%, the 10-year had lost 4bps to 4.20% while the 30-year yield finished unchanged at 4.45%.
In major euro-zone markets, 10-year bond yields moved in a broadly-similar fashion to their US counterpart with the exception of Tuesday when Europeans yields fell.
S&P Global Market Intelligence released its flash July PMI figures for the euro-zone midweek. The preliminary reading of the composite index was 50.1, down from June’s final reading of 50.8. “The two largest euro area economies continued to underperform the wider region. Output in Germany decreased for the first time in four months, while France posted a third consecutive monthly reduction in business activity.”
Germany’s ifo Institute released the July reading of its business climate index a day later. The index declined again as German firms’ views of current conditions and the short-term outlook both deteriorated.
By the end of the week, the German 10-year bund yield had lost 7bps to 2.40 while the French 10-year OAT yield had declined by 2bps to 3.11%. The Italian 10-year BTP yield slipped 1bp to 3.76% over the week while the British 10-year gilt yield finished 2bps lower at 4.21%.
The AOFM held one index-linked bond (ILB) tender this week, with $100 million of September 2030 ILBs priced at a real yield of 1.72%. In addition, a $11.5 billion issue of new December 2035 bonds via syndication was priced at a nominal yield of 4.45%. The usual two Treasury note tenders also raised $2.0 billion on a short-term basis.
The gross value of all bonds issued by the AOFM in the 2024/2025 financial year (not taking into account short-term Treasury note tenders) is $4.60 billion. There are currently $853.85 billion of Treasury bonds and $41.185 billion of Treasury index-linked bonds on issue. The next series to mature does so on 21 November 2024 when $41.30 billion worth of bonds are due. There are also $27.00 billion of short-term Treasury notes outstanding.