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Aust bonds lower despite wage data

Australian bond futures are lower following an earlier rally, despite weaker than expected wage price data adding to expectations of a December interest rate cut.

Westpac interest rates strategist Tim Jung said bond prices eased off on Wednesday after rallying overnight on Tuesday amid negative sentiment surrounding European and US debt issues.

"We did have a nice rally overnight so while we have pared back a bit today it hasn't been a meaningful move," he said.

He said the slide in prices came despite official data showing a smaller than expected rise in Australian wages in the September quarter, which gives the Reserve Bank of Australia more room to cut the cash rate in December.

Mr Jung said the market appeared to be waiting for news from overseas to drive its movements.

"It really feels like we are really waiting for a decent offshore lead at the moment."

He said prices were likely to move higher over the coming days amid ongoing concerns about Spain and Greek debt issues as well as the so-called `fiscal cliff' of tax increases and spending cuts due to take effect in early 2013.

"I don't think the news that has come out of Europe has been all that positive so I think we will trade around these levels with a slight bullish bias," he said.

At 1630 AEDT on Wednesday, the December 10-year bond futures contract was trading at 97.015 (implying a yield of 2.985 per cent), down from 97.025 (2.975 per cent) at Tuesday's close.

The December three-year bond futures contract was at 97.470 (2.530 per cent), down from 97.490 (2.510 per cent).