Australia Markets closed

Bonds lower after RBA decision

Australian bond prices are lower, after the Reserve Bank of Australia (RBA) made the unexpected decision to leave interest rates on hold.

At 1630 AEDT on Tuesday, the December 10-year bond futures contract was trading at 96.900 (implying a yield of 3.100 per cent), down from 96.920 (3.080 per cent) on Monday.

The December three-year bond futures contract was at 97.340 (2.660 per cent), down from 97.420 (2.580 per cent).

JP Morgan interest rate strategist Sally Auld said there had been some volatility in the market ahead of the RBA decision at 1430 AEDT.

"The market sold off this morning, and bond prices fell for no particular reason, then rallied again just before the RBA meeting," she said.

"The rally turned out to be a bit misguided because they didn't cut rates.

"That caused the market to sell off again, particularly three year bonds."

The central bank cited improvement in the global economy and higher than expected inflation in its decision to keep the cash rate steady at 3.25 per cent, after a rate cut of a quarter of a percentage point in October.

Ms Auld said the bond market could weaken further, as investors considered the mild tone in the RBA statement.

"I think the market was quite surprised at how neutral the statement was," she said.

"In light of that, we might see bond yields push higher once the London session begins."