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AAP

2012-11-21

The Australian bond market has closed weaker despite gaining ground through the day in response to some disappointing news from Europe.

At 1630 AEDT on Wednesday, the December 10-year bond futures contract was at 96.88 (implying a yield of 3.12 per cent), down from 96.92 (3.08 per cent) at Tuesday's local close.

The December three-year bond futures contract was trading at 97.38 (2.62 per cent), down from 97.4 (2.6 per cent).

Australian bonds opened the local session weaker, tracking the moves on US Treasuries during the overnight session.

However, the market pared back some of the losses experienced during offshore trading after a meeting of European finance ministers could not agree on a debt reduction package for the troubled Greek economy.

Nomura head of fixed income Jon Linton said the Australian bond market took direction from offshore.

"The local events haven't had any impact," Mr Linton said.

"It is entirely following the news about the Greek bailout and Euro group of ministers failing to agree on a decision for Greece."

"That has put a floor on the prices of government bonds in Australia."

The European finance ministers emerged from 11 hours of talks in Brussels with no agreement, and only plans to meet again on November 26.

Direction during Wednesday night's (AEDT) offshore session is expected to come from ongoing negotiations between the White House and US Congress over tax measures and government spending cuts due to automatically come into effect from January 2013.

Should they come into effect, the tax hikes and spending cuts are expected to push the US back into recession with a significant knock-on effect on the global economy.

Mr Linton said the next significant Australian economic data for bond traders would be capital expenditure figures on November 29.

"Until then, we will be driven primarily by events in the US and events in Europe," Mr Linton said.