Investing

Bond Market: The month that was. November 2017

  • 04.DEC.2017
  • Ian Martin, CIO,  XTB

After a series of data releases during the month, wage data probably received the most attention due to the lack of wage inflation. Bond yields rallied (lower yields, higher prices).  The market continued to price a lower probability of a rate hike during 2018.

The pricing of the RBA cash rate for December 2018 moved from 1.70% to 1.63%. The yield of the 3 year government bond fell by 0.08% to 1.90% creating a price rise. The 10 year government bond’s yield also fell by 0.17% to 2.50%. Because the 10 year bond is  longer dated than the 3 year bond, its price had a larger appreciation which is reflected in the performance of the sub- indices.

The Month in Charts

Chart 1: Pricing of RBA Cash rate in 12 months

Chart 2: Yield of 3 year Government Bond

Chart 3: Yield of 10 year Government Bond

Index Performance

  • The Bloomberg AusBond Composite Index for all maturities (the common benchmark) produced a positive return of 0.87% for the month.
  • The Treasury Index for all maturities which is the single largest contributor to the Composite Index produced a positive 1.08% return benefitting from the contribution of longer dated bonds.
  • The Credit index produced a positive return of 0.72%.

 

INDEX As at 30 NOV 17 1 MONTH
Composite Bond Index All Maturities 0.87%
Treasury Index All Maturities 1.08%
Credit Index All Maturities 0.72%

0 – 5 year corporate bonds still produced positive returns but long dated bonds were the winners.

 

It is worth looking into sectors of the markets to see where the best returns were to be had.

Index MATURITY 1 MONTH YEAR TO DATE
Composite Bond Index All Maturities 0.87% 4.20%
Treasury Index All Maturities 1.08% 4.25%
Credit Index All Maturities 0.72% 5.30%
Composite Bond Index 0 – 3 Years 0.23% 2.34%
Treasury Index 0 – 3 Years 0.24% 1.90%
Credit Index 0 – 3 Years 0.30% 3.47%
Composite Bond Index 3 – 5 Years 0.47% 3.47%
Treasury Index 3 – 5 Years 0.45% 2.64%
Credit Index 3 – 5 Years 0.63% 5.69%
Composite Bond Index 5 – 7 Years 0.82% 4.34%
Treasury Index 5 – 7 Years 0.80% 3.53%
Credit Index 5 – 7 Years 1.03% 7.15%
Composite Bond Index 7 – 10 Years 1.31% 5.21%
Treasury Index 7 – 10 Years 1.31% 4.63%
Credit Index 7 – 10 Years 1.56% 8.00%
Composite Bond Index 10 + Years 2.09% 7.30%
Treasury Index 10 + Years 2.13% 7.41%
Credit Index 10 + Years 2.02% 8.93%

Duration benefitted returns during the month and therefore 7-10 and 10+ maturity buckets were the best performers for the month.

On a year to date basis, overall the Credit Index is still outperforming the Composite Index and longer dated corporate bonds are currently showing the largest return. It should be noted that longer dated bonds have greater sensitivity to interest rate movement. Should the bond bears regain control, these returns could be eroded.

Source: Bloomberg & Australian Corporate Bond Company

Events

  • 18Dec 2017

    YTMMG1: MIRVAC 5.50% 18 DEC 2017

    This is the coupon date

  • 19Dec 2017

    YTMNVN: NOVION 5.00% 19 DEC 2019

    This is the coupon date

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