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Aust bonds lower after RBA minutes

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AAP

2012-12-18

Australian bond futures prices were lower after the release of the minutes from the Reserve Bank of Australia's latest board meeting reduced traders' expectations of future interest rate cuts.

RBC Capital Markets fixed income strategist Su-Lin Ong said local bond futures prices fell following the release of the RBA's minutes at 1130 AEDT.

"The minutes from the December meeting suggested it was quite a close decision and I guess the interpretation is that with the cash rate down to three per cent the hurdle to cut further may be quite high," she said.

"So that weighed quite high on fixed income markets."

The RBA cut the cash rate to three per cent in December, from 3.25 per cent previously.

Ms Ong said developments in negotiations on the `fiscal cliff' of tax hikes and spending cuts due to apply in 2013, unless US political leaders can agree to alternative measures, was likely to drive bond markets over the coming days.

"I think most attention is on these fiscal cliff negotiations, we have had some progress since the weekend and I think there is an expectation that we are inching closer to both a compromise and agreement," Ms Ong said.

US President Barack Obama has offered a proposal to House of Representatives Speaker John Boehner which would raise revenue by $US1.2 trillion ($A1.14 trillion), and cut spending by the same amount.

At 1630 AEDT on Tuesday, the March 10-year bond futures contract was at 96.640 (implying a yield of 3.360 per cent), down from 96.670 (3.330 per cent) on Monday.

The March three-year bond futures contract was trading at 97.220 (2.780 per cent), down from 97.235 (2.765 per cent).