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Aust bonds rally on negative sentiment

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AAP

2012-11-15

Australian bond futures prices are higher on negative global sentiment and weakness across share markets.

ANZ head of interest rate research Tony Morriss said a string of international factors, including sharp falls on global share markets, added to demand for local bonds.

"Obviously the backdrop has been quite positive (for bonds) for a number of reasons," he said.

New York's Dow Jones dropped 1.45 per cent overnight on Wednesday, and set the tone for Asian markets on Thursday.

Mr Morriss said the local bond market opened higher on Thursday and continued to rally throughout the day.

Global sentiment has turned sharply negative over the past fortnight, partly due to concerns about the so called `fiscal cliff' of tax increases and spending cuts due to come into effect in the US in early 2013.

If President Barack Obama and the Republican-controlled House of Representatives cannot find an alternative solution to bring down the country's debt, it is feared the fiscal cliff measures could send the US back into recession.

Mr Morriss said global events were likely to drive the local bond market for the next few weeks.

"We haven't really (got) major data here until the capital expenditure data next week and the RBA (interest rates) decision in December," he said.

At 1630 AEDT on Thursday, the December 10-year bond futures contract was at 97.060 (implying a yield of 2.940 per cent), up from 97.015 (2.985 per cent) at Wednesday's close.

The December three-year bond futures contract was trading at 97.530 (2.470 per cent), up from 97.470 (2.530 per cent).