Summary: ACGB bond yields up in Australia; ACGB 10-year spread to US Treasury yield falls to -7bps; 10-year bond yields up in US, some major European markets; $2.95 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields had a couple of days of modest rises before rising noticeably midweek. This was followed by an even-larger fall the next day and a moderate rise at the end of the week. By this point, the 3-year ACGB yield had gained 9bps to 3.77% while 10-year and 20-year yields both finished 7bps higher at 4.21% and 4.51% respectively. The spread between US and Australian 10-year Treasury bond yields fell from -3bps to -7bps.
Over in the US, 10-year bond yields started the week quietly but then jumped up on Tuesday. Yields then partially fell back over the next two days before rising moderately at the end of the week.
January’s CPI report weas the first major report of the week and it came out on Tuesday. Headline CPI increased by 0.3%, above expectations. The annual inflation rate slowed to 3.1 while the core inflation rate remained unchanged at 3.9%.
December’s retail sales report was released a couple of days later along with January industrial production figures. Total sales decreased by 0.8% over the month, worse than expected. Industrial production contracted by 0.1%, in contrast with the expected modest expansion which had been generally expected.
January producer price indices (PPI) and the latest reading of the University of Michigan’s Consumer Sentiment index were released at the end of the week. Headline PPI increased by 0.3% over the month, more than expected, while the annual growth rate remained unchanged at 0.9%. UoM consumer sentiment improved again in February, a third consecutive month of gains for the index.
The US Fed’s Nowcast model was also updated as usual. The March 2024 quarter forecast was lowered from 3.3% to 2.8%.
By the end of the week, the US 2-year Treasury bond yield had gained 16bps to 4.64%, the 10-year yield had added 11bps to 4.28% while the 30-year yield finished 6bps higher at 4.43%.
In major euro-zone markets, 10-year bond yields ignored a big jump in US yields on Tuesday but otherwise moved in a broadly similar manner to their US counterpart.
Germany’s ZEW February survey was published on Tuesday and it indicated the ZEW Economic Sentiment index had increased from January’s reading of 15.2 to 19.9. However, ZEW’s current conditions index fell from -77.3 to -81.7. ZEW President Professor Achim Wambach said, “The German economy is in a bad place. The assessment of the current economic situation by the respondents has deteriorated to the lowest level since June 2020.”
The euro-zone’s December industrial production figures were released the next day. Output jumped by 2.6% over the month, more than expected, but output was still only up 1.2% on an annual basis.
By the end of the week, the German 10-year bund yield had added 2bps to 2.40% while the French 10-year OAT yield lost 2bps to 2.87%. The Italian 10-year BTP yield decreased by 9bps to 3.87% over the week while the British 10-year gilt yield finished 2bps higher at 4.28%.
The AOFM held an index-linked bond tend in addition to the usual vanilla bond tender this week; $150 million of August 2035 ILBs were priced at a real yield of 1.72% while $800 million of December 2030s were priced at a nominal yield of 4.09%. There were also two Treasury note tenders which raised $2.0 billion on a short-term basis.
The gross value of all bonds issued by the AOFM in the 2023/2024 financial year (not taking into account buy-backs or short-term Treasury note tenders) is $28.85 billion. There are currently $851.45 billion of Treasury bonds and $40.836 billion of Treasury index-linked bonds on issue. The next series to mature does so on 21 April 2024 when $35.90 billion worth of bonds are due. There are also $29.00 billion of short-term Treasury notes outstanding.