Supply fears not apparent in Australia
While Australian bond yields have risen largely in tandem with US bond yields, supply issues don't seem to be overly concerning investors. Yields on 10-year Commonwealth government bonds peaked last week at 5.58 per cent, up from a share of less than four per cent at the beginning of the year.Nevertheless, the Australian Office of Financial Management is continuing to enjoy solid demand at its twice-weekly bond auctions. On Wednesday it sold $699 million of March 2019 bonds at an average yield of 5.35 per cent. The issue was 2.8 times oversubscribed. On Friday, $698 million of April 2012 CGS were sold at an average yield of 3.98 per cent, with the issue 4.6 times oversubscribed.The highlight of the week was NSW Treasury Corporation's $2.55 billion sale of a new four-year benchmark bond. The issue was launched at a minimum size of $500 million but $3.55 billion of orders were received, allowing the bonds to be priced to yield 69 basis points over CGS or approximately 41 bps over swap. There was a suggestion that the bonds were so eagerly sought because investors expected the bonds would be covered by a Commonwealth government guarantee, once this becomes available. Maybe this thought was inspired by the enabling bill being tabled as the issue was being made, but there was nothing in TCorp's releases to suggest this would be the case.