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Aust bonds slightly lower in quiet trade

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AAP

2012-12-19

Australian ten-year bond futures prices are slightly lower but trading in a tight range as traders prepare for the Christmas break and monitor developments in US budget negotiations.

UBS interest rate strategist Matthew Johnson said local bond futures moved a little higher on Wednesday morning in response to a newspaper interview with Reserve Bank of Australia Governor Glenn Stevens.

Mr Johnson said the market interpreted the report published in the Australian Financial Review, as a sign the RBA was willing to cut the cash rate further if necessary.

"It was bid-up a bit on the open on the AFR story, but there wasn't really anything that drove the move and after that it has been pretty much sideways action," Mr Johnson said.

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

Mr Johnson said positive sentiment surrounding the US debt negotiations had "surprisingly little" impact on the local bond market.

Democrats and Republicans are trying to reach a compromise to bring down the country's debt while avoiding a "fiscal cliff" of automatic tax hikes and spending cuts due to apply from the beginning of 2013.

He said traders were preparing for the Christmas break, but developments in the US negotiations could still move the market over the coming days.

"I think people are winding down risk because they will be on holidays and because they expect the market will be less liquid," he said.

At 1630 AEDT on Wednesday, the March 10-year bond futures contract was at 96.630 (implying a yield of 3.370 per cent), down from 96.640 (3.360 per cent) at Tuesday's close.

The March three-year bond futures contract was trading at 97.220 (2.780 per cent), level with its previous local close.