Summary: ACGB yields up in Australia; ACGB 10-year spread to US Treasury yield rises to 24bps; 10-year bond yields down in US, major European markets; $1.6 billion of bonds issued by AOFM.
Locally, long-term ACGB yields moved higher throughout the first two days of the week, partially retraced over the next two days and then moved moderately on Friday. By this point, 3-year and 10-year ACGB yields had both gained 8bps to 3.82% and 4.32% respectively while the 20-year yield finished 6bps higher at 4.70%. The spread between US and Australian 10-year Treasury bond yields increased from 14bps to 24bps.
Over in the US, 10-year bond yields declined though most of its shortened week, the exception being Thursday when yields rose noticeably.
There were no particularly notable US economic data releases until Thursday retail sales and industrial productions were released.
September’s retail sales increased by 0.4%, greater than the expected rise as well as August’s 0.1% increase. September industrial production contracted by 0.3% over the month, a larger decline than expected.
The New York Fed’s Nowcast model was updated at the end of the week as usual. The September 2024 quarter forecast declined from 3.1% (annualised) to 3.0% while the December 2024 forecast was lowered from 2.8% to 2.6%.
By this stage, the US 2-year Treasury bond yield had returned to its starting point at 3.96%, the 10-year yield had lost 2bps to 4.08% while the 30-year yield finished 1bp lower at 4.40%.
In major euro-zone markets, 10-year bond yields moved in a fairly similar fashion to their US counterpart.
Germany’s ZEW October survey was published on Tuesday and it indicated the ZEW Economic Sentiment index had increased from 3.6 points to 13.1 points. “Contributing factors include the expectation of stable inflation rates and the associated prospect of further interest rate cuts by the ECB. Positive signals are also coming from Germany’s export markets.” However, ZEW’s current conditions index decreased again, this time from -84.5 points to -86.9 points.
The euro-zone’s August industrial production figures were also released the same day. Output rose by 1.8% over the month, in line with expectations, but was just 0.1% higher than in August 2023.
The ECB policy meeting took place on Thursday. The ECB’s various policy rates were each lowered by 25bps, as expected.
By the end of the week, the German 10-year bond yield had lost 7bps to 2.19% and the French 10-year OAT had shed 15bps to 2.90%. The Italian 10-year BTP yield fell by 21bps to 3.35% over the week while the British 10-year gilt yield finished 15bps lower at 4.13%.
The AOFM held an index-linked bond (ILB) tender in addition to three vanilla bond tenders this week. $100 million of November 2032 ILBs were priced at a real yield of 1.86% while $300 million June 2051s, $700 million of May 2034s and $500 million of April 2027s were priced at nominal yields of 4.83%, 4.18% and 3.66% respectively. 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 2024/2025 financial year (not taking into account short-term Treasury note tenders) is $33.95 billion. There are currently $871.05 billion of Treasury bonds and $41.735 billion of Treasury index-linked bonds on issue. The next series to mature does so on 21 November 2024 when $41.30 billion worth of bonds are due. There are also $27.00 billion of short-term Treasury notes outstanding.