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SYDNEY, Feb 5 AAP

February 05 2013, 09:35AM

Australian bond futures are stronger after concerns about the political situation in Spain and Italy prompted global stock markets to slide overnight.

Nomura Australia head of fixed income Jon Linton said safe-haven investments like bonds rallied overnight amid growing calls for Spanish Prime Minister Mariano Rajoy to resign over a corruption scandal.

The negative sentiment on markets was further stoked by news former Italian Prime Minister Silvio Berlusconi had made solid gains in polls ahead of national elections due later in February.

"I think the market had probably got itself fairly complacent with the risk-on move which has been going on for three or four months," Mr Linton said.

"These are the first signs of any renewed tension that we've heard from Europe for some time and I think the market got caught a bit wrong-footed on that."

Mr Linton said the global negative sentiment would continue to drive markets during Tuesday's local session. Prices of shorter-term bonds could fall if the Reserve Bank of Australia (RBA) decided to keep the cash rate on hold, he added.

The RBA will announce at 1430 AEDT whether it will lower the cash rate or keep it on hold at 3.0 per cent.

AAP's survey of 15 economists shows that all but one expect the RBA to keep the cash rate steady for February.

At 0830 AEDT on Tuesday, the March 10-year bond futures contract was trading at 96.510 (implying a yield of 3.490 per cent), up from 96.435 (3.565 per cent) on Friday.

The March three-year bond futures contract was at 97.120 (2.880 per cent), up from 97.050 (2.950 per cent).