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SYDNEY, Nov 16 AAP

November 16 2012, 4:52PM

Australian bond futures prices have drifted lower on a quiet day of trading as markets wait for developments in the US and Europe.

Commonwealth Bank interest rate strategist Phillip Brown said markets were waiting to see how negotiations progress in the US between Republicans and Democrats attempting to avoid a so-called `fiscal cliff' of tax hikes and spending cuts due in early 2013.

"There hasn't been a lot happening today, people are just sitting around waiting to find out what's happened there," he said.

Bond futures prices have rallied for the past week and a half after the US election saw President Barack Obama re-elected and Republicans retain control of the House of Representatives - putting the two parties on a collision course over the issue.

If the two parties cannot agree to alternative measures to bring down the national debt, it is feared the fiscal cliff could send the US back into recession.

Mr Brown said traders were also closely watching for developments in Europe's debt crisis.

Official data released overnight on Thursday showed the euro zone slipped into recession in the September quarter, contracting by 0.1 per cent.

With no major Australian economic data releases planned for the next week or so, he said events in Europe and the US would drive the local market.

At 1630 AEDT on Friday, the December 10-year bond futures contract was at 97.040 (implying a yield of 2.960 per cent), down from 97.060 (2.940 per cent) at Thursday's close.

The December three-year bond futures contract was trading at 97.510 (2.490 per cent), down from 97.530 (2.470 per cent).