Aust bonds close stronger
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Australian bond futures prices are higher amid growing concerns about Italy's political state following its weekend elections.
At 1630 AEDT on Tuesday, the March 10-year bond futures contract was trading at 96.645 (implying a yield of 3.355 per cent), up from Monday's close of 96.525 (3.475 per cent).
The March three-year bond futures contract was at 97.260 (2.740 per cent), up from 97.140 (2.860 per cent) previously.
Nomura Australia's head of fixed income Jon Linton said the local futures market opened firmer in response to preliminary results from the Italian election.
"It was a pretty big day today in the market - and it was all sparked by the Italian election," Mr Linton said.
"Before the election, yields were higher across the board.
"We've really moved 17 basis points since then, which is a pretty big move.
"I think this is moving us closer towards fair value."
Based on votes counted so far, the election is expected to result in political deadlock, with Democratic Party leader Pier Luigi Bersani controlling the lower house and former prime minister Silvio Berlusconi's party dominating the upper house.
Mr Bersani has indicated he will continue unpopular austerity measures aimed at improving Italy's finances while Mr Berlusconi campaigned on a populist, anti-austerity platform.
He said the results had investors re-evaluating global risks and left scope for Australian bond futures prices to keep moving higher.
"It's a bit of a wake-up call, a reminder that all the risks globally haven't gone away," Mr Linton said.
"The European risks, alright they've diminished significantly, but there's still uncertainty and political risks around Europe.
"And I think there's risk to the US economy from the political situation there and the spending cuts and the budget deficit issues.
"It's a little wake up call to the market, they've gotten a little complacent about credit risk."