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SYDNEY, Nov 19 AAP

November 19 2012, 09:10AM

Australian 10-year bond futures are slightly higher but are expected to trade in a tight range on positive sentiment from US deficit negotiations.

JP Morgan interest rate strategist Sally Auld said futures started the day higher following caution on the market on Friday but she expected local bonds to trade in a narrow range on Monday.

She said stock markets were likely to rally during the Asian session after both American political parties, the Democrats and the Republicans, on Friday night expressed willingness to find common ground and agree to a long-term deficit reduction program for the world's largest economy.

The parties want to avoid the so-called `fiscal cliff' of automatic tax hikes and spending cuts that will automatically take effect in early 2013 and are expected to send the US into recession if an agreement cannot be reached.

"Equities will probably rally a bit and that will probably stop bonds from rallying too much," she said.

"I think it will be very much a range-bound day"

At 0830 AEDT on Monday, the December 10-year bond futures contract was at 97.060 (implying a yield of 2.940 per cent), up from 97.040 (2.960 per cent) on Friday.

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