Summary: 10-year bond yield down in Australia; ACGB 10-year spread to US Treasury yield rises to +24bps; 10-year bond yields down in US, major European markets; $2.1 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields started with a moderate rise before falling back over the next two days. Yields then plunged on Thursday and then rose a touch at the end of the week. By this point, the 3-year ACGB yield had lost 16bps to 3.75% while 10-year and 20-year yields both finished 15bps lower to 4.15% and 4.46% respectively. The spread between US and Australian 10-year Treasury bond yields rose from 7bps to 24bps.
Over in the US, 10-year bond yields remained stable on Monday but then fell each day over the remainder of the week, with heavy falls on Wednesday and Thursday.
The November CPI report was released on Tuesday and it produced a 0.1% increase, above expectations. The annual inflation rate slowed to 3.1% while the core inflation rate remained unchanged at 4.0%.
November producer price indices (PPI) were released the next day. The index remained steady over the month, less than the expected 0.1% increase, while the annual growth rate slowed to 0.8%.
The FOMC meeting also ended on Wednesday and, although there was no change to its target range, changes to committee members’ “dot plots” implied several rates cuts in 2024.
November’s retail sales report came out on Thursday and it indicated total sales had increased by 0.3% over the month, better than expected. Fuel station sales had the largest effect on the overall result.
Industrial production numbers for November were released at the end of the week. They indicated production had expanded by 0.2%, as expected.
The US Fed’s Nowcast model was updated as usual. The December quarter GDP growth forecast was lowered to from 2.3% annualised to 2.2% annualised, or a 0.5% expansion over the quarter. The March 2024 quarter forecast was reduced to 2.0% annualised.
By this point, the US 2-year Treasury bond yield had lost 29bps to 4.43%, the 10-year yield had shed 32bps to 3.91% while the 30-year yield finished 30bps lower at 4.01%.
In major euro-zone markets, 10-year bond yields followed a broadly-similar path their US counterpart.
Germany’s ZEW December survey was published on Tuesday. It indicated its Economic Sentiment index had increased from November’s reading of 9.8 to 12.8. ZEW’s current conditions index also increased, from -79.8 to -77.1.
The euro-zone’s October industrial production figures were released the next day. Output contracted by 0.7% over the month, a larger contraction than expected.
The ECB Governing Council left its official rates unchanged on Thursday. Its growth and inflation forecasts were lowered for 2024 to 0.8% and 2.7% respectively . It also announced intentions to reduce its PEPP portfolio by €7.5 billion per month on average during the second half of 2024 and discontinue reinvestments at the end of 2024.
By the end of the week, the German 10-year bund yield had lost 26bps to 2.02%, while the French 10-year OAT yield had shed 29bps to 2.54%. The Italian 10-year BTP yield lost 34bps to 3.71% while the British 10-year gilt yield finished 35bps lower at 3.86%.
The AOFM held just the one index-linked bond tender this week; $100 million of August 2040s were priced at a real yield of 1.96%. There were also two Treasury note tenders which raised $2.0 billion on a short-term basis.
Following the release of the Mid-Year Economic and Financial Year, the AOFM announced its 2023/24 issuance programme on Wednesday. It expects to issue around $50 billion of bonds and between $2 billion and $4 billion of ILBs over the coming financial year, about $25 billion less than the value of bonds maturing in that period.
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 $24.70 billion. There are currently $847.45 billion of Treasury bonds and $40.686 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 $26.50 billion of short-term Treasury notes outstanding.