The story in charts
After falling in Q1, yields of the 10-year government bond actually rose 10 bps as markets saw government and central bank responses as a signal to put risk on.
Chart 1: 10-Year Gov Bond Yields
The yield of the 3- year government bond remained unchanged as a direct result of the RBAs Yield Curve Control which targets the 3-year government bond at 0.25% (Chart 2). This policy is being closely watched by the Federal Reserve in the USA.
Chart 2: 3-Year Gov Bond Yield
Bloomberg Sub-Indices for government bonds show on a month on month basis April was a negative month for 7 to 10-year bonds. (Chart 3). However, the significant fall in yields in the first quarter of 2020 means all government bond indices are still in healthy positive territory.
The 7 to 10-year Index is the only part of the yield curve studied still below the Feb highs. Note: We have not analysed bonds beyond 10 years.
Chart 3: MOM Returns Gov Bond Indices
Chart 4: Index Growth Gov Bonds
Studying corporate bonds tells a different story
Corporate bonds were performing well for the first two months of 2020, but suffered negative returns in March. In May the RBA announced they would accept investment-grade corporate bonds as eligible securities for repo. Following this corporate bonds have seen positive performance (chart 5).
Chart 5: MOM Returns Credit Indices
Chart 6 shows the monthly return of the corporate 3 to 5-year index vs the equivalent government bond index.
Chart 6: MOM Returns Gov vs Credit Indices
Chart 7: Index Growth of Corporate Bonds
In chart 7, you can see with tightening spreads the credit indexes are breaking into new highs, except for 7 to 10-year part of the credit index. The 5 to 7-year maturity is back to February levels (up 3% for the year).
Source: Bloomberg and ACBC