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Aust bonds lower despite US election rally

Australian bond futures rallied on news US President Barack Obama had won a second term, but finished the local session lower.

At 1630 AEDT on Wednesday, the December 10-year bond futures contract was trading at 96.885 (implying a yield of 3.115 per cent), down from 96.900 (3.100 per cent) on Tuesday.

The December three-year bond futures contract was at 97.350 (2.650 per cent), down from 97.340 (2.660 per cent).

Deutsche Bank fixed income strategist David Plank said news of President Obama's win boosted demand for local bond futures.

He said markets were concerned that, with the Democrats holding on to the White House and Republicans retaining their majority in Congress, the US may struggle to avoid a so-called `fiscal' cliff of spending cuts and tax increases due in the new calendar year.

The controversial measures are set to be imposed automatically from January 2013, unless political leaders can reach an agreement to bring down debt.

"The consensus view is that an Obama win doesn't really do anything in terms of potential Fed (US Federal Reserve) policy down the line.

"I suppose (there are) some concerns about what it means about the fiscal cliff and the negotiations around that," Mr Plank said.

He said bond futures ended Wednesday lower due to a sell-off in the overnight session fuelled by strong performances on global equity markets.

Mr Plank said the release of Australian employment data on Thursday would be the next key event for the local bond market.

An AAP survey of 16 economists revealed a median forecast for the unemployment rate to rise by 0.1 per cent to 5.5 per cent in October, a result that Mr Plank said could further increase demand for bonds.