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SYDNEY, Feb 25 AAP

February 25 2013, 09:13AM

Australian bond futures are stronger following a downgrade to Britain's credit rating and figures suggesting euro zone banks are reluctant to repay ultra-cheap loans any sooner than necessary.

ANZ head of interest rate research Tony Morriss said Australian bond futures prices rose over the weekend after it was revealed commercial lenders had signalled their intention to repay 61.1 billion euros ($A78.99 billion) to the European Central Bank (ECB) ahead of schedule.

Analysts had expected the early repayment figure to be closer to

130 billion euros ($A168.67 billion).

The ECB provided ultra cheap funds to euro zone banks in late 2011 and early 2012 in order to prevent a credit crunch.

Mr Morriss said news that ratings agency Moody's had downgraded Britain's credit rating to AA1, from AAA, also hurt market sentiment and added to demand for Australian bonds.

"That would have added a little bit of demand for safe haven bonds," he said.

"With this downgrade, Australia now has the third largest triple-A stable bond market in the world, after Germany and Canada."

But Mr Morriss said bond prices had fallen from their highs, in part due to speculation surrounding the imminent appointment of the new governor of the Bank of Japan, who is expected to favour more expansionary policies than his predecessor.

"Any hit to global sentiment has proven to be short-lived at the moment and the news out of Japan has been good for risk sentiment," he said.

At 0830 AEDT on Friday, the March 10-year bond futures contract was trading at 96.510 (implying a yield of 3.490 per cent) up from 96.485 (3.515 per cent) on Friday afternoon.

The March three-year bond futures contract was at 97.120 (2.880 per cent), up from 97.100 (2.900 per cent).