In the USA, 10 year government bonds moved from a YTM of 2.33% to 2.36% with a trading range of 2.27% to 2.46%. Many observers fear that continued trading above 2.40% will lead to bonds moving higher in yield to 2.60%.
Meanwhile, in Australia we saw the printing of a disappointing CPI number of 1.8% YoY and 0.6% QoQ (vs the forecast of 2.0% and 0.8%). Bond prices generally rallied (lower yields). The market moved from pricing the RBA cash rate in October 2018 from 1.78% to 1.63%. The yield of the 3 year government bond fell by 0.17% to 1.98% creating a price rise. The 10 year government bond’s yield also fell by 0.17% to 2.67%. Because the 10 year bond is a longer dated bond than the 3 year bond, its price had a larger appreciation which is reflected in performance in 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
- The Bloomberg AusBond Composite Index for all maturities (the common benchmark) produced a positive return of 1.09% for the month.
- The Treasury Index for all maturities, which is the single largest contributor to the composite index, produced a positive 1.24% return benefitting from the contribution of longer dated bonds.
- The Credit Index produced a positive return of 0.98%.
|INDEX||As at 31 OCT 17||1 MONTH|
|Composite Bond Index||All Maturities||1.09%|
|Treasury Index||All Maturities||1.24%|
|Credit Index||All Maturities||0.98%|
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||1.09%||3.30%|
|Treasury Index||All Maturities||1.24%||3.13%|
|Credit Index||All Maturities||0.98%||4.56%|
|Composite Bond Index||0 – 3 Years||0.39%||2.11%|
|Treasury Index||0 – 3 Years||0.35%||1.65%|
|Credit Index||0 – 3 Years||0.49%||3.16%|
|Composite Bond Index||3 – 5 Years||0.86%||2.99%|
|Treasury Index||3 – 5 Years||0.80%||2.18%|
|Credit Index||3 – 5 Years||1.07%||5.02%|
|Composite Bond Index||5 – 7 Years||1.24%||3.49%|
|Treasury Index||5 – 7 Years||1.18%||2.71%|
|Credit Index||5 – 7 Years||1.38%||6.06%|
|Composite Bond Index||7 – 10 Years||1.55%||3.86%|
|Treasury Index||7 – 10 Years||1.49%||3.27%|
|Credit Index||7 – 10 Years||1.83%||6.34%|
|Composite Bond Index||10 + Years||2.12%||5.10%|
|Treasury Index||10 + Years||2.14%||5.17%|
|Credit Index||10 + Years||1.94%||6.77%|
Source: Bloomberg & Australian Corporate Bond Company