Australian bonds futures prices are lower after positive comments from the European Central Bank boosted market sentiment and reduced demand for fixed income assets.
JP Morgan interest rate strategist Sally Auld said bond futures sold off across the globe following the ECB's meeting overnight on Thursday.
The ECB board voted to keep its key interest rate at its current historic low of 0.75 per cent and President Mario Draghi said after the meeting that recent signs suggested the situation in Europe had broadly stabilised and financial market confidence had improved significantly.
"The ECB went from the majority voting for a rate cut in December and downgrading growth and inflation forecasts, but not actually cutting rates to no-one voting for a rate cut and Draghi seemingly talking more hawkishly," Ms Auld said.
"I don't the market was really positioned for that, though I think we under-performed (in the selloff) compared to the US."
Ms Auld said local bond futures prices had traded in a narrow range following the sell off, but could move a little lower during the US and European sessions tonight.
She said the release of unemployment figures for December next week and inflation figures for the December quarter the following week, would be the key drivers for the local market in the lead up to February's Reserve Bank of Australia board meeting.
At 1630 AEDT, the March 10-year bond futures contract was trading at 96.545 (implying a yield of 3.455 per cent), down from Thursday's local close of 96.570 (3.430 per cent).
The March three-year bond futures contract was at 97.140 (2.860 per cent), down from 97.160 (2.840 per cent) previously.