Australian bond futures prices are lower amid ongoing strength on global equities markets.
"The global backdrop is very positive for riskier assets, so you're seeing stock markets perform very well," said Tony Morriss, head of interest rate research at ANZ.
He said that with the Australian stock market at a four-and-a-half-year high, and expectations rising that the Reserve Bank of Australia would cut interest rates, bonds were likely to weaken further.
"It looks like we're heading back towards a test of some very important levels on our bond market, towards three per cent on three-year bonds," Mr Morriss said.
"There's further scope for the RBA to ease rates in the near term which seems to be somewhat reduced, so it's left our market a little bit vulnerable."
Mr Morriss said the RBA appeared to be entering comfort mode and it was unlikely data would emerge to support the bond market until the release of quarterly Australian capital expenditure data on 28 February, so a further drop in bond prices was expected.
"There will probably be further bias towards weakness considering this attraction to better sentiment globally," he said.
"Considering how well our bonds have done during the global crises over the last six months, (that) has left the market a bit vulnerable in terms of positioning."
At 1630 AEDT on Thursday, the March 10-year bond futures contract was trading at 96.430 (implying a yield of 3.570 per cent), down from 96.520 (3.480 per cent) on Wednesday.
The March three-year bond futures contract was at 97.090 (2.910 per cent), down from 97.150 (2.850 per cent).