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AAP

2012-12-06

Australian bond futures prices are higher following the better than expected employment data and indications interest rates could remain low for an extended period.

UBS interest rate strategist Matthew Johnson said the release of official employment data, showing the unemployment rate fell to 5.2 per cent in November, had contributed to a fairly volatile trading session for bond futures on Thursday.

"The market rallied heading into the employment data and then gapped much lower once it (the data) was released," he said.

"I think by the end of the day people were focused on the fact the employment-to-population ratio didn't move at all, so we've rallied back to where we were prior to when the report was released."

He said ten-year bond futures had also been in demand on Thursday following a speech by Reserve Bank of Australia deputy governor Dr Philip Lowe on Wednesday night.

Dr Lowe suggested interest rates were likely to remain lower for some time, compared to their average levels over the past two decades.

"He basically said the neutral level of the cash rate is a bit lower, so that means that owning Aussie ten year (bonds) at three and a bit per cent probably isn't such a bad trade," he said.

Mr Johnson said Dr Lowe's speech was likely to continue to influence the bond market for the next few days.

"I think people will be changing their investment position on the basis of that speech."

The other key event for the local market would be the release of US non-farm payrolls data on Friday night.

At 1630 AEDT on Thursday, the December 10-year bond futures contract was at 96.955 (implying a yield of 3.045 per cent), up from 96.900 (3.100 per cent) on Wednesday.

The December three-year bond futures contract was trading at 97.400 (2.600 per cent), up from 97.380 (2.620 per cent).