Summary: 10-year bond yield up in Australia; ACGB 10-year spread to US Treasury yield falls to +12bps; 10-year bond yields up in US, major European markets; $2.7 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields did not move much over the first three days of the week before falling noticeably on Thursday and then jumping at the end of the week. By this point, the 3-year ACGB yield had lost 6bps to 3.88%, the 10-year yield had gained 6bps to 4.07% while the 20-year yield finished 10bps higher at 4.36%. The spread between US and Australian 10-year Treasury bond yields narrowed from 17bps to 12bps.
Over in the US, 10-year bond yields rose modestly early in the week before dipping midweek. Yields jumped on Thursday and then partially retraced on Friday.
S&P Global Market Intelligence’s latest flash reading of its composite index was released at the start of the week, with the index declining from June’s final reading of 53.2 to 53.0. The manufacturing index rose from 46.3 to 49.0 and the services index lost 2.0 to 52.4. S&P Global’s Chris Williamson said, “The overall rate of output growth, measured across manufacturing and services, is consistent with GDP expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter.”
The Conference Board’s July reading of its Consumer Sentiment Index was released the next day. The index increased again, moving further above its long-term average.
The FOMC’s two-day meeting ended on Wednesday with the announcement of a 25bps rise of the target range for the federal funds rate.
The Atlanta Fed’s Nowcast model was also updated. Its June quarter GDP growth estimate was raised from the previous week’s figure to 2.6% annualised, or a 0.5% expansion over the quarter.
June quarter GDP figures were released on Thursday. The US economy expanded at an annualised rate of 2.4%, a faster pace than expected.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by 0.2% in June and by 4.1% on an annual basis, down from 4.6% in May.
By this point, the US 2-year Treasury bond yield had added 2bps to 4.87% and 10-year and 30-year yields had both gained 11bps to 3.95% and 4.01%.
In major euro-zone markets, 10-year bond yields fell moderately at the start of the week before moving higher over the next two days. Yields then moved very little in net terms for the remaining days.
S&P Global Market Intelligence released its July flash PMI figures for the euro-zone some hours before the US figures on Monday. The preliminary reading of the composite index was 48.9, down from June’s final reading of 49.9.
Germany’s ifo Institute released the July reading of its business climate index on Tuesday. The index fell for a third consecutive month, as firms’ views of current conditions and their collective outlook both deteriorated again.
The Governing Council of the ECB held its July policy meeting on Thursday. As expected, the ECB raised its three policy rates, all by 25bps. “The developments since the last meeting support the expectation that inflation will drop further over the remainder of the year but will stay above target for an extended period.”
The latest euro-zone’s Economic Sentiment Indicator (ESI) was released at the end of the week. The index declined in July, further under its long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-July growth rate of 0.1%, down from 0.2% in June.
By this stage, the German 10-year yield had added 3bps to 2.49% and the French 10-year bond yield had gained 4bps to 3.02%. The Italian 10-year BTP yield increased by 4bps over the week to 4.10% while the British 10-year gilt yield finished 5bps higher at 4.39%.
The AOFM held one vanilla bond tender this week; $700 million of April 2033s were priced at a yield of 4.04%. 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 $3.05 billion. There are currently $826.75 billion of Treasury bonds and $39.586 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 $27.00 billion of short-term Treasury notes outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 4.11 | -0.08 | -0.26 | 4.18 | 4.07 |
| 21-Nov-24 | 0.25 | 41,300 | 4.10 | -0.09 | -0.18 | 4.20 | 4.04 |
| 21-Apr-25 | 3.25 | 41,500 | 4.01 | -0.09 | -0.18 | 4.12 | 3.96 |
| 21-Nov-25 | 0.25 | 39,200 | 3.94 | -0.06 | -0.14 | 4.03 | 3.87 |
| 21-Apr-26 | 4.25 | 39,600 | 3.90 | -0.07 | -0.12 | 3.99 | 3.83 |
| 21-Sep-26 | 0.50 | 37,800 | 3.88 | -0.06 | -0.11 | 3.96 | 3.80 |
| 21-Apr-27 | 4.75 | 36,700 | 3.87 | -0.05 | -0.10 | 3.93 | 3.78 |
| 21-Nov-27 | 2.75 | 31,400 | 3.85 | -0.04 | -0.09 | 3.91 | 3.76 |
| 21-May-28 | 2.25 | 30,900 | 3.85 | -0.03 | -0.08 | 3.90 | 3.76 |
| 21-Nov-28 | 2.75 | 34,100 | 3.87 | -0.02 | -0.06 | 3.91 | 3.76 |
| 21-Apr-29 | 3.25 | 36,600 | 3.90 | -0.01 | -0.05 | 3.93 | 3.79 |
| 21-Nov-29 | 2.75 | 34,700 | 3.93 | -0.01 | -0.03 | 3.95 | 3.81 |
| 21-May-30 | 2.50 | 37,100 | 3.95 | 0.00 | -0.01 | 3.96 | 3.83 |
| 21-Dec-30 | 1.00 | 38,700 | 3.98 | 0.02 | 0.01 | 3.98 | 3.85 |
| 21-Jun-31 | 1.50 | 38,100 | 4.01 | 0.03 | 0.03 | 4.01 | 3.88 |
| 21-Nov-31 | 1.00 | 21,000 | 4.02 | 0.03 | 0.05 | 4.02 | 3.89 |
| 21-May-32 | 1.25 | 39,300 | 4.04 | 0.04 | 0.06 | 4.04 | 3.90 |
| 21-Nov-32 | 1.75 | 29,000 | 4.06 | 0.05 | 0.07 | 4.06 | 3.92 |
| 21-Apr-33 | 4.50 | 25,100 | 4.06 | 0.06 | 0.07 | 4.06 | 3.92 |
| 21-Nov-33 | 3.00 | 21,800 | 4.07 | 0.06 | 0.07 | 4.07 | 3.92 |
| 21-May-34 | 3.75 | 18,100 | 4.08 | 0.06 | 0.07 | 4.08 | 3.93 |
| 21-Dec-34 | 3.50 | 16,300 | 4.09 | 0.06 | 0.07 | 4.09 | 3.95 |
| 21-Jun-35 | 2.75 | 11,550 | 4.13 | 0.07 | 0.08 | 4.13 | 3.98 |
| 21-Apr-37 | 3.75 | 12,300 | 4.20 | 0.07 | 0.08 | 4.20 | 4.06 |
| 21-Jun-39 | 3.25 | 10,300 | 4.29 | 0.08 | 0.09 | 4.29 | 4.15 |
| 21-May-41 | 2.75 | 13,800 | 4.35 | 0.08 | 0.11 | 4.35 | 4.22 |
| 21-Mar-47 | 3.00 | 14,200 | 4.40 | 0.10 | 0.15 | 4.40 | 4.27 |
| 21-Jun-51 | 1.75 | 19,600 | 4.40 | 0.11 | 0.17 | 4.40 | 4.27 |