Summary: 10-year bond yield up in Australia; ACGB 10-year spread to US Treasury yield falls to +18bps; 10-year bond yields up in US, UK, major European markets; $1.95 billion of bonds, notes issued by AOFM.
Locally, long-term ACGB yields fell for the first three days of the week before rebounding over the remaining days. By the end of the week, the 3-year ACGB yield had added 2bps to 3.99%, the 10-year yield had gained 3bps to 4.02% while the 20-year yield finished 7bps higher at 4.30%. The spread between US and Australian 10-year Treasury bond yields tightened from 25bps to 18bps.
Over in the US, 10-year bond yields declined at the start of the week and then see-sawed for the next two days. Yields surged on Thursday but then stabilised at the end of the week.
The Conference Board’s June reading of its Consumer Sentiment Index was released on Tuesday. The index increased further above its long-term average.
At the end of the week, the latest report on personal consumption expenditures indicated core PCE price inflation had increased by 0.3% in May and by 4.6% on annual basis, down from 4.7% in April.
The Atlanta Fed’s Nowcast model was also updated. Its June quarter GDP growth estimate was raised from the previous week’s figure to 2.2% annualised, or a 0.5% expansion over the quarter.
By this point, the US 2-year Treasury bond yield had gained 14bps to 4.89%, the 10-year yield had added 10bps to 3.84% while the 30-year yield finished 5bps higher at 3.86%.
In major euro-zone markets, 10-year bond yields followed a similar pattern to their US counterparts.
Germany’s ifo Institute released the June reading of its business climate index at the start of the week. The index fell for a second consecutive month, as firms’ views of current conditions and their collective outlook both deteriorated.
The latest euro-zone’s Economic Sentiment Indicator (ESI) was released on Thursday. The index declined in June, and is noticeably below its long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-June growth rate of 0.2%, down from 0.5% in May.
The “flash” June consumer price index (CPI) report was released at the end of the week. It produced an annual inflation rate of 5.5% in the euro-zone, slightly lower than the expected 5.6% and down from May’s final reading of 6.1%. Core annual CPI accelerated from 5.3% to 5.4%.
By this point, the German 10-year bond yield had added 4bps to 2.39% and the French 10-year OAT yield had gained 4bps to 2.92%. The Italian 10-year BTP yield rose 9bps over the week to 4.07% while the British 10-year gilt yield finished 6bps higher at 4.44%.
The AOFM held one bond tender this week as well as two tenders for index-linked bonds; $300 million of June 2051s were priced at a yield of 4.16% while $100 million of November 2027 ILBs and $50 million of August 2040 ILBs were priced at real yields of 1.10% and 1.64% respectively. There were also two Treasury note tenders which raised $1.5 billion on a short-term basis.
The AOFM announced during the week it will issue a revised 2023/24 funding requirement after the MYEFO statement. A larger budget surplus is now expected.
The gross value of all bonds issued by the AOFM in the 2022/2023 financial year (not taking into account buy-backs or short-term Treasury note tenders) was $81.00 billion. There are currently $823.85 billion of Treasury bonds and $39.436 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 $26.50 billion of short-term Treasury notes currently outstanding.
AUSTRALIAN GOVERNMENT BONDS
| MATURITY | COUPON (%) | ISSUE SIZE ($M) | CLOSING YIELD | Δ WEEK | Δ MONTH | WEEK HIGH | WEEK LOW |
|---|---|---|---|---|---|---|---|
| 21-Apr-24 | 2.75 | 35,900 | 4.37 | -0.01 | 0.58 | 4.37 | 4.23 |
| 21-Nov-24 | 0.25 | 41,300 | 4.29 | 0.01 | 0.61 | 4.29 | 4.12 |
| 21-Apr-25 | 3.25 | 41,500 | 4.21 | 0.02 | 0.62 | 4.21 | 4.04 |
| 21-Nov-25 | 0.25 | 39,200 | 4.10 | 0.02 | 0.63 | 4.10 | 3.92 |
| 21-Apr-26 | 4.25 | 39,600 | 4.04 | 0.02 | 0.60 | 4.04 | 3.87 |
| 21-Sep-26 | 0.50 | 37,800 | 4.02 | 0.02 | 0.58 | 4.02 | 3.84 |
| 21-Apr-27 | 4.75 | 36,700 | 3.98 | 0.02 | 0.54 | 3.98 | 3.81 |
| 21-Nov-27 | 2.75 | 31,400 | 3.96 | 0.02 | 0.52 | 3.96 | 3.79 |
| 21-May-28 | 2.25 | 30,200 | 3.95 | 0.02 | 0.49 | 3.95 | 3.78 |
| 21-Nov-28 | 2.75 | 34,100 | 3.95 | 0.02 | 0.47 | 3.95 | 3.79 |
| 21-Apr-29 | 3.25 | 36,600 | 3.96 | 0.02 | 0.44 | 3.96 | 3.80 |
| 21-Nov-29 | 2.75 | 34,700 | 3.97 | 0.02 | 0.41 | 3.97 | 3.82 |
| 21-May-30 | 2.50 | 37,100 | 3.99 | 0.03 | 0.38 | 3.99 | 3.83 |
| 21-Dec-30 | 1.00 | 38,700 | 4.00 | 0.03 | 0.35 | 4.00 | 3.84 |
| 21-Jun-31 | 1.50 | 38,100 | 4.01 | 0.03 | 0.34 | 4.01 | 3.85 |
| 21-Nov-31 | 1.00 | 21,000 | 4.02 | 0.04 | 0.32 | 4.02 | 3.86 |
| 21-May-32 | 1.25 | 39,300 | 4.02 | 0.04 | 0.30 | 4.02 | 3.87 |
| 21-Nov-32 | 1.75 | 29,000 | 4.02 | 0.04 | 0.30 | 4.02 | 3.87 |
| 21-Apr-33 | 4.50 | 24,400 | 4.02 | 0.04 | 0.29 | 4.02 | 3.87 |
| 21-Nov-33 | 3.00 | 21,100 | 4.03 | 0.03 | 0.28 | 4.03 | 3.88 |
| 21-May-34 | 3.75 | 18,100 | 4.04 | 0.04 | 0.28 | 4.04 | 3.89 |
| 21-Dec-34 | 3.50 | 15,500 | 4.06 | 0.03 | 0.25 | 4.06 | 3.91 |
| 21-Jun-35 | 2.75 | 11,550 | 4.08 | 0.03 | 0.24 | 4.08 | 3.93 |
| 21-Apr-37 | 3.75 | 12,300 | 4.16 | 0.04 | 0.21 | 4.16 | 4.00 |
| 21-Jun-39 | 3.25 | 10,300 | 4.24 | 0.04 | 0.20 | 4.24 | 4.09 |
| 21-May-41 | 2.75 | 13,800 | 4.31 | 0.06 | 0.19 | 4.31 | 4.14 |
| 21-Mar-47 | 3.00 | 14,200 | 4.35 | 0.09 | 0.15 | 4.35 | 4.17 |
| 21-Jun-51 | 1.75 | 19,600 | 4.34 | 0.11 | 0.14 | 4.34 | 4.15 |