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Aust bonds weaker after US bond auction

Australian bond futures prices are lower, following a lacklustre US Treasury bond auction and concerns about the British economy.

At 0830 AEDT on Thursday, the March 10-year bond futures contract was trading at 96.455 (implying a yield of 3.545 per cent), down from 96.520 (3.480 per cent) on Wednesday.

The March three-year bond futures contract was at 97.100 (2.900 per cent), down from 97.150 (2.850 per cent).

The Bank of England released its quarterly inflation report, which said inflation in the UK would be above target and economic growth was forecast to be lacklustre.

JP Morgan interest rate strategist Sally Auld said the weak US bond auction was also a negative for Australian bond futures and the US Treasury bond market.

"The 10-year bond auction in the US paled. I guess there wasn't as much demand as the market thought, so that pushed Treasury yields higher (prices lower)," Ms Auld said.

"I guess the momentum in bond markets was towards higher yields."

Ms Auld said she expected the three-year bond futures price to rebound after hitting 97.100.

"Every time we've come down to those levels there's been pretty solid demand," she said.

"I guess that's been in the back of people's minds and the market has been pretty range-bound."