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January 29 2013, 09:01AM

Australian bond futures prices are lower following improved sentiment from Europe.

UBS interest rate strategist Matthew Johnson said demand for bonds fell during the Australia Day long weekend, following improved manufacturing data out of Germany and news European banks will make a larger-than-expected repayment to the European Central Bank (ECB).

The ECB has announced banks this week will repay more than 137 billion euros ($A176.32 billion) of the one trillion euros ($A1.29 trillion) borrowed through its Long Term Refinancing Operation.

"We've had a fairly material selloff since Friday's close," Mr Johnson said.

Mr Johnson said bond futures prices were now at the lower end of their recent range, which meant they were likely to pick up on Tuesday.

He said the National Australia Bank's Monthly Business Survey, due out on Tuesday, was likely to be relatively weak and could help lift bond futures prices.

"After a move of this size, I think the temptation is to buy," he said.

At 0830 AEDT on Tuesday, the March 10-year bond futures contract was trading at 96.585 (implying a yield of 3.415 per cent), down from Thursday's close of 96.705 (3.295 per cent).

The March three-year bond futures contract was at 97.190 (2.810 per cent), down from 97.290 (2.710 per cent).