The Australian bond market has closed flat to weaker as a positive day for local stocks dampened demand for fixed-income assets.
At 1630 AEDT on Thursday, the December 10-year bond futures contract was trading at 96.67 (implying a yield of 3.33 per cent), down from its pre-Christmas close of 96.68 (3.32 per cent) on Monday.
The December three-year bond futures contract was at 97.27 (2.73 per cent), unchanged from Monday's close.
In the first trading session after the two-day Christmas break, local bonds moved within a tight range in the absence of local economic data.
However, a rally on stock markets both at home and in Asia caused yields to rise and prices to fall slightly during the afternoon session.
Nomura Australia head of of fixed income Jon Linton said the local bond market traded in quiet conditions.
"It is probably just reacting to Asian equities performing relatively well," Mr Linton said.
"That is slightly negative for the region's bond markets."
Australian stocks gained about 0.3 per cent, while bourses in Hong Kong (up 0.4 per cent) and Tokyo (up 1.1 per cent) were also having a good day.
Direction between now and the new year was expected to come from the latest developments between US President Barack Obama and the US Congress over the looming budget deadline.
Discussions between legislators centred on what to do with the series of tax rises and government spending cuts due to come into effect early in 2013.
Talks were expected to resume during Thursday night's (AEDT) offshore session.
The measures, dubbed the fiscal cliff, were tipped to push the US economy into recession and have a significant knock-on impact on the world economy.
Mr Linton said bonds were expected to perform well if negotiations failed to avoid the fiscal cliff.
"If it can be avoided, it will be negative for bonds," Mr Linton said.