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SYDNEY, Feb 4 AAP

February 05 2013, 4:46PM

The Australian bond market is stronger, propped up by the Reserve Bank of Australia's decision to keep its interest rate on hold.

At 1630 AEDT on Tuesday, the March 10-year bond futures contract was trading at 96.530 (implying a yield of 3.470 per cent), up from 96.435 (3.565 per cent) on Monday.

The March three-year bond futures contract was at 97.150 (2.850 per cent), up from 97.050 (2.950 per cent).

Westpac senior market strategist Damien McColough said local bond futures prices began to rally when the local session started, based on renewed concerns about political instability in Europe.

He said Tuesday's RBA announcement to keep the cash rate at three per cent helped to support the early rally.

"They kind of remained positive after the (RBA decision)," Mr McColough said.

"That allowed the bonds to sustain the kind of rallies that we saw at the beginning of the day."

Mr McColough said it was unlikely the rate decision would keep the rally going overnight, as global market movements become a key driver.

"I would suggest that they would be able to, at the very least, hold their gains with some scope for slightly higher prices in the next couple of days," he said.