Summary: 10-year bond yield down in Australia; ACGB 10-year spread to US Treasury yield rises to +3bps; 10-year bond yields down in US, major European markets; $2.95 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields rose at the start of the week before reversing modestly on Tuesday and falling heavily midweek. Yields rose modestly on Thursday before falling noticeably at the end of the week. By this point, 3-year and 10-year ACGB yields had both lost 16bps to 4.09% and 4.47% respectively while the 20-year yield finished 15bps lower at 4.79%. The spread between US and Australian 10-year Treasury bond yields rose from -1bp to +3bps.
Over in the US, 10-year bond yields declined slightly at the start of the week before dropping hard on Tuesday. Yields rose noticeably midweek, reversed the next day and then inched up at the end of the week.
October’s CPI report was released on Tuesday and it produced a flat result, below expectations. The annual inflation rate slowed to 3.2% while the core inflation rate slowed to 4.0%.
October producer price indices (PPI) were released the next day. The index decreased by 0.5% over the month, in contrast with the expected 0.1% increase, while the annual growth rate slowed to 1.3%.
October’s retail sales report was also released and it indicated total sales had declined by 0.1% over the month, worse than expected. Sales of vehicles and parts had the largest effect on the overall result.
Industrial production numbers for October were released on Thursday. They indicated production had contracted by 0.6%, worse than the 0.4% contraction which had been expected.
The US Fed’s Nowcast model was updated at the end of the week. The December quarter GDP growth forecast remained unchanged at 2.5% annualised, or a 0.6% expansion over the quarter.
By this point, the US 2-year Treasury bond yield had lost 15bps to 4.90%, the 10-year yield had shed 20bps to 4.44% while the 30-year yield finished 17bps lower at 4.59%.
In major euro-zone markets, 10-year bond yields moved broadly in line with their US counterpart.
Germany’s ZEW October survey was published on Tuesday. It indicated its Economic Sentiment index had increased from October’s reading of -1.1 to 9.8. ZEW’s current conditions index crept up from -79.9 to -79.8.
The euro-zone’s September industrial production figures were released the next day. Output contracted by 1.1% over the month, a slightly larger contraction than expected.
By the end of the week, the German 10-year bund yield had lost 13bps to 2.58%, as had the French 10-year OAT yield which finished at 3.16%. The Italian 10-year BTP yield shed 20bps over the week to 4.36% while the British 10-year gilt yield finished 23bps lower at 4.27%.
The AOFM held an index-linked bond (ILB) tender as well as the now-usual vanilla bond tender this week; $150 million of November 2032 ILBs were priced at a real yield of 2.01% and $800 million of November 2028s were priced at a nominal yield of 4.21%. 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 $22.30 billion. There are currently $845.15 billion of Treasury bonds and $40.436 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 $29.00 billion of short-term Treasury notes outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 4.36 | -0.05 | 0.18 | 4.42 | 4.36 |
| 21-Nov-24 | 0.25 | 41,300 | 4.30 | -0.12 | 0.11 | 4.45 | 4.30 |
| 21-Apr-25 | 3.25 | 41,500 | 4.24 | -0.14 | 0.14 | 4.42 | 4.24 |
| 21-Nov-25 | 0.25 | 39,200 | 4.16 | -0.14 | 0.13 | 4.34 | 4.16 |
| 21-Apr-26 | 4.25 | 39,600 | 4.09 | -0.15 | 0.14 | 4.29 | 4.09 |
| 21-Sep-26 | 0.50 | 38,600 | 4.09 | -0.15 | 0.14 | 4.29 | 4.09 |
| 21-Apr-27 | 4.75 | 36,700 | 4.09 | -0.15 | 0.14 | 4.29 | 4.09 |
| 21-Nov-27 | 2.75 | 32,200 | 4.10 | -0.16 | 0.11 | 4.31 | 4.10 |
| 21-May-28 | 2.25 | 32,500 | 4.11 | -0.16 | 0.09 | 4.32 | 4.11 |
| 21-Nov-28 | 2.75 | 34,800 | 4.14 | -0.16 | 0.08 | 4.35 | 4.14 |
| 21-Apr-29 | 3.25 | 36,600 | 4.18 | -0.17 | 0.07 | 4.39 | 4.18 |
| 21-Nov-29 | 2.75 | 34,700 | 4.22 | -0.17 | 0.06 | 4.44 | 4.22 |
| 21-May-30 | 2.50 | 37,100 | 4.27 | -0.16 | 0.05 | 4.48 | 4.27 |
| 21-Dec-30 | 1.00 | 38,700 | 4.32 | -0.16 | 0.03 | 4.53 | 4.32 |
| 21-Jun-31 | 1.50 | 38,100 | 4.36 | -0.16 | 0.03 | 4.57 | 4.36 |
| 21-Nov-31 | 1.00 | 21,000 | 4.39 | -0.16 | 0.02 | 4.60 | 4.39 |
| 21-May-32 | 1.25 | 39,300 | 4.42 | -0.16 | 0.02 | 4.63 | 4.42 |
| 21-Nov-32 | 1.75 | 29,000 | 4.45 | -0.15 | 0.01 | 4.65 | 4.45 |
| 21-Apr-33 | 4.50 | 25,900 | 4.45 | -0.15 | 0.01 | 4.65 | 4.45 |
| 21-Nov-33 | 3.00 | 22,500 | 4.47 | -0.15 | 0.00 | 4.67 | 4.47 |
| 21-May-34 | 3.75 | 18,800 | 4.48 | -0.16 | 0.00 | 4.68 | 4.48 |
| 21-Dec-34 | 3.50 | 17,000 | 4.49 | -0.16 | -0.01 | 4.70 | 4.49 |
| 21-Jun-35 | 2.75 | 14,650 | 4.52 | -0.16 | -0.01 | 4.72 | 4.52 |
| 21-Apr-37 | 3.75 | 12,300 | 4.60 | -0.16 | -0.02 | 4.80 | 4.60 |
| 21-Jun-39 | 3.25 | 10,300 | 4.69 | -0.16 | -0.03 | 4.90 | 4.69 |
| 21-May-41 | 2.75 | 14,300 | 4.77 | -0.16 | -0.03 | 4.97 | 4.77 |
| 21-Mar-47 | 3.00 | 14,200 | 4.83 | -0.16 | -0.04 | 5.03 | 4.83 |
| 21-Jun-51 | 1.75 | 19,600 | 4.81 | -0.16 | -0.06 | 5.01 | 4.81 |