Australian bond futures prices are lower after the US Federal Reserve set unemployment targets and announced it would extend its debt-purchasing program.
Westpac senior market strategist Damien McColough said the Fed's announcement boosted global demand for risk assets and hurt bond prices.
The Fed announced it would continue buying long-term bonds following the expiration of its `Operation Twist' debt-purchasing program and said it would keep short-term interest rates close to zero until the US unemployment rate drops below 6.5 per cent.
The central bank will continue to spend $US45 billion ($A42.95 billion) a month on long-term bonds, a move designed to keep lending rates low and stimulate spending, but it will no longer cover the cost of the purchases through the sale of short term debt.
That will see the Fed's balance sheet expand but will also pump more money into the US economy.
Mr McColough said the fall in local bond prices over the past few days was surprising, given the sharp decline in domestic consumer and business sentiment.
"Based on our economic fundamentals it doesn't really make sense for us to sell off, but obviously we are part of that global risk piece and that is what is influencing us in the short term," he said.
The Westpac/Melbourne Institute Index of Consumer Sentiment for December, released on Wednesday, showed a surprise fall in confidence in December.
Meanwhile, National Australia Bank's monthly business survey on Tuesday showed business confidence had slumped to its lowest level since April 2009.
Mr McColough said the fall in bond prices would make them more attractive to investors, which suggested the contracts could regain some ground over the coming days.
Local bond futures were likely to rebound a little over the next few days.
At 0830 AEDT on Thursday, the December 10-year bond futures contract was at 96.825 (implying a yield of 3.175 per cent), down from 96.855 (implying a yield of 3.145 per cent) on Wednesday.
The December three-year bond futures contract was trading at 97.270 (2.730 per cent), down from 97.320 (2.680 per cent).