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Aust bonds weaker on US rate hike hopes

The Australian bond market is weaker after comments from a US Federal Reserve official boosted confidence in the US economy.

The Fed last week held off on raising its interest rate but Federal Reserve Bank of Atlanta president Dennis Lockhart overnight confirmed the decision was close and expects a hike before the end of the year.

St George chief economist Hans Kunnen said share markets bounced back from their recent falls, and bond markets consequently weakened.

"Interest rate markets continue to sift through comments made by various board members of the Federal Reserve," he said.

At 0830 AEST on Tuesday, the December 2015 10-year bond futures contract was trading at 97.205 (implying a yield of 2.795 per cent), down from 97.245 (2.755 per cent) on Monday.

The December 2015 three-year bond futures contract was at 98.090 (1.910 per cent), down from 98.110 (1.890 per cent).

KEY MOVEMENTS:

Government bond yields:

* CGS 5.5pct Jan 2018, 1.880pct, from 1.879pct on Monday

* CGS 4.25pct April 2026, 2.792pct, from 2.790pct

Sydney Futures Exchange prices:

* December 2015 bill futures, 97.910, from 97.920

* March 2016 bill futures, 97.990, unchanged

(*Closes taken at 1630 AEST previous local session)

Source: IRESS