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Aust bonds close firmer

The Australian bond market has closed firmer, with a strong rally during the local session overcoming some weakness during the overnight offshore session.

At 1630 AEST on Tuesday, the June 10-year bond futures contract was trading at 96.910 (implying a yield of 3.090 per cent), up from Monday's local close of 96.900 (3.100 per cent).

The June three-year bond futures contract was at 97.450 (2.550 per cent), up from 97.440 (2.560 per cent) previously.

Australian bonds opened weaker after moving in line with a selloff on US Treasuries during overnight trading.

However, bonds fell back into favour during the local trading day to not only recover lost ground but finish firmer.

ANZ head of interest rate research Tony Morriss said investors continued to find local bonds an attractive investment given Australia's relatively high interest rates compared with many of its global peers.

"We are in a world of very low policy settings with a lot of liquidity," Mr Morriss said.

"We'd expect over time ongoing interest from overseas investors to target our relatively high yields in a world of policy remaining accommodative and excess liquidity."

The Reserve Bank of Australia's cash rate sits at three per cent, compared with 0.75 per cent in Europe and zero in the United States and Japan.

Mr Morriss noted that interest rates on longer-dated Australian bonds were also relatively higher compared with overseas government debt.

Weak credit data from the RBA also supported the bond market.

The RBA said lending for housing grew by 4.4 per cent in the 12 months to March, equalling the weakest annual growth since records began in 1976.

Mr Morriss said some end-of-month buying, as investors tided up their books at the end of April ahead of the upcoming maturity of some bond lines over the next month, gave a firmer tone to bonds.

The focus for bond markets during Tuesday night's (AEST) offshore session was expected to be on the release of US house prices, manufacturing and consumer confidence figures.