Summary: 10-year bond yield up in Australia; ACGB 10-year spread to US Treasury yield falls to -22bps; 10-year bond yields up in US, most major European markets; $1.65 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields rose noticeably at the start of the week before starting a decline which took began midweek and continued over the remainder of the week. By this point, 3-year and 10-year ACGB yields had both added 3bps to 3.81% and 4.11% respectively while the 20-year yield finished 1bp higher at 4.44%. The spread between US and Australian 10-year Treasury bond yields decreased from -19bps to -22bps.
Over in the US, 10-year bond yields rose modestly at the start of the wee, slipped back for two days before rising moderately over the final two days of the week.
August’s CPI report was released midweek and it produced a 0.6% increase, slightly above expectations. The annual inflation rate increased from 3.3 to 3.7% while the core inflation rate slowed to 4.4%.
August producer price indices (PPI) were released the next day. The index increased by 0.7% over the month, more than expected, and the annual growth rate accelerated to 1.6%.
August’s retail sales report was also released and it indicated total sales had increased by 0.6% over the month, more than expected. “Gasoline station” sales had the largest effect on the overall result.
Industrial production numbers for August were released at the end of the week. They indicated production had increased by 0.4%, considerably more than expected.
The latest reading of the University of Michigan’s Consumer Sentiment index came out the same day and indicated respondents had become more pessimistic in September.
The New York Fed’s Nowcast model has been restarted. Its September quarter GDP growth estimate was maintained at 2.3% annualised, or a 0.6% expansion over the quarter.
By this point, US 2-year and 10-year Treasury bond yields had both gained 6bps to 5.03% and 4.33% respectively while the 30-year yield finished 8bps higher at 4.42%.
In major euro-zone markets, 10-year bond yields followed a broadly similar path to their US counterpart but with a substantial rise in yields at the end of the week.
Germany’s ZEW September survey was published on Tuesday. It indicated its Economic Sentiment index had increased from August’s reading of -12.3 to -11.4. However, ZEW’s current conditions index deteriorated, from -71.3 to -79.4.
The euro-zone’s July industrial production figures were released the next day. Output contracted by 1.1% over the month, slightly worse than expected.
The Governing Council of the ECB held its September policy meeting on Thursday. As expected, the ECB raised its three policy rates, all by 25bps.
By the end of the week, the German 10-year bund yield had gained 7bps to 2.68% and the French 10-year OAT yield had added 8bps to 3.21%. The Italian 10-year BTP yield increased by 12bps over the week to 4.45% while the British 10-year gilt yield finished 6bps lower at 4.47%.
The AOFM held just the one index-linked bond (ILB) tender during the week; $150 million of August 2040s were priced at a real yield of 1.81%. There were also two Treasury note tenders which raised $1.5 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 $7.50 billion. There are currently $830.75 billion of Treasury bonds and $40.036 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 $27.50 billion of short-term Treasury notes outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 4.05 | 0.03 | -0.04 | 4.05 | 4.04 |
| 21-Nov-24 | 0.25 | 41,300 | 4.02 | 0.01 | -0.02 | 4.02 | 4.02 |
| 21-Apr-25 | 3.25 | 41,500 | 3.92 | 0.03 | -0.01 | 3.94 | 3.92 |
| 21-Nov-25 | 0.25 | 39,200 | 3.85 | 0.04 | -0.02 | 3.87 | 3.85 |
| 21-Apr-26 | 4.25 | 39,600 | 3.83 | 0.05 | -0.01 | 3.85 | 3.82 |
| 21-Sep-26 | 0.50 | 37,800 | 3.83 | 0.05 | 0.01 | 3.85 | 3.83 |
| 21-Apr-27 | 4.75 | 36,700 | 3.83 | 0.05 | 0.02 | 3.85 | 3.83 |
| 21-Nov-27 | 2.75 | 31,400 | 3.84 | 0.05 | 0.02 | 3.85 | 3.83 |
| 21-May-28 | 2.25 | 30,900 | 3.84 | 0.04 | 0.00 | 3.87 | 3.84 |
| 21-Nov-28 | 2.75 | 34,800 | 3.86 | 0.04 | 0.00 | 3.89 | 3.86 |
| 21-Apr-29 | 3.25 | 36,600 | 3.89 | 0.04 | 0.00 | 3.93 | 3.89 |
| 21-Nov-29 | 2.75 | 34,700 | 3.92 | 0.03 | 0.00 | 3.96 | 3.92 |
| 21-May-30 | 2.50 | 37,100 | 3.95 | 0.02 | -0.01 | 4.00 | 3.95 |
| 21-Dec-30 | 1.00 | 38,700 | 4.00 | 0.02 | -0.01 | 4.05 | 4.00 |
| 21-Jun-31 | 1.50 | 38,100 | 4.03 | 0.02 | -0.01 | 4.08 | 4.03 |
| 21-Nov-31 | 1.00 | 21,000 | 4.05 | 0.02 | 0.00 | 4.11 | 4.05 |
| 21-May-32 | 1.25 | 39,300 | 4.07 | 0.02 | -0.01 | 4.13 | 4.07 |
| 21-Nov-32 | 1.75 | 29,000 | 4.09 | 0.02 | 0.00 | 4.16 | 4.09 |
| 21-Apr-33 | 4.50 | 25,100 | 4.09 | 0.02 | 0.00 | 4.15 | 4.09 |
| 21-Nov-33 | 3.00 | 22,500 | 4.10 | 0.02 | -0.01 | 4.17 | 4.10 |
| 21-May-34 | 3.75 | 18,800 | 4.12 | 0.02 | -0.01 | 4.18 | 4.12 |
| 21-Dec-34 | 3.50 | 17,000 | 4.14 | 0.02 | 0.00 | 4.20 | 4.14 |
| 21-Jun-35 | 2.75 | 12,250 | 4.16 | 0.02 | -0.01 | 4.22 | 4.16 |
| 21-Apr-37 | 3.75 | 12,300 | 4.25 | 0.02 | -0.01 | 4.31 | 4.25 |
| 21-Jun-39 | 3.25 | 10,300 | 4.35 | 0.02 | 0.00 | 4.41 | 4.35 |
| 21-May-41 | 2.75 | 14,300 | 4.42 | 0.01 | 0.00 | 4.48 | 4.42 |
| 21-Mar-47 | 3.00 | 14,200 | 4.50 | 0.03 | 0.03 | 4.54 | 4.49 |
| 21-Jun-51 | 1.75 | 19,600 | 4.51 | 0.03 | 0.03 | 4.55 | 4.51 |