Summary: ACGB bond yields down in Australia; ACGB 10-year spread to US Treasury yield rises to +14bps; 10-year bond yields down in US, steady/up slightly in major European markets; $2.0 billion of notes issued by AOFM.
Locally, long-term ACGB yields started the week with a moderate rise before trending lower. By the end of the week, the 3-year ACGB yield had lost 9bps to 3.65%, the 10-year yield had shed 7bps to 4.08% while the 20-year yield finished 3bps lower at 4.40%. The spread between US and Australian 10-year Treasury bond yields rose from 11bps to 14bps.
Over in the US, 10-year bond yields fell through much of the week.
The December CPI report was released on Thursday and it produced a 0.3% increase, above expectations. The annual inflation rate accelerated to 3.3% while the core inflation rate slowed to 3.9%.
December producer price indices (PPI) were released the next day. The index declined by 0.1% the month, in contrast with the expected 0.1% increase, and the annual growth rate ticked up from 0.8% to 0.9%.
The US Fed’s Nowcast model was also updated as usual. The December quarter GDP growth forecast was lowered to from 2.5% annualised to 2.4%, or a 0.6% expansion over the quarter. The March 2024 quarter forecast was reduced from 2.7% to 2.5%.
By this point, the US 2-year Treasury bond yield had shed 27bps to 4.13%, the 10-year yield had lost 10bps to 3.94% while the 30-year yield finished 2bps lower at 4.18%.
In major euro-zone markets, 10-year bond yields followed a broadly-similar path their US counterpart except for a noticeable rise on Tuesday.
The latest euro-zone’s Economic Sentiment Indicator (ESI) came out at the start of the week. The index increased in December but remained well short of its long-term average. This indicator has a solid correlation with euro-zone GDP and it implied a year-to-December growth rate of 0.7%, up from 0.2% in November.
By the end of the week, the German 10-year bund yield had added 2bps to 2.18% while the French 10-year OAT yield returned to its starting point at 2.67%. The Italian 10-year BTP yield lost 10bps to 3.72% while the British 10-year gilt yield finished unchanged at 3.98%.
The AOFM only held Treasury note tenders this week and 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 $24.70 billion. There are currently $847.45 billion of Treasury bonds and $40.686 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 $28.50 billion of short-term Treasury notes outstanding.