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Aust bonds lower on improved sentiment

Australian bond futures prices are lower amid improved international market sentiment.

ANZ head of interest rate research Tony Morriss said there had been a move away from safe haven assets, like Australian bond futures, in recent days amid signs US politicians may reach a deal to avoid a `fiscal cliff' of tax hikes and spending cuts due to apply automatically in 2013 which are expected to push the economy into recession.

He said improved US housing data this week and hopes euro zone finance ministers will agree to a moratorium on Greece's debt had also boosted sentiment.

"It seems like global factors mean our bonds are backing up a little bit and we are seeing some weakness in our futures," he said.

Mr Morriss said the global sentiment overshadowed a signal from the Reserve Bank of Australia (RBA) that it was prepared to cut the cash rate below its level of 3.25 per cent in coming months if necessary.

RBA Governor Glenn Stevens told a Melbourne audience on Tuesday night the central bank had discussed the possibility of future rate cuts at its November 6 board meeting.

"The board felt that further easing might be required over time," he said.

Mr Morriss said the improved global sentiment could see bond prices fall further this week.

At 0830 AEDT on Tuesday, the December 10-year bond futures contract was at 96.885 (implying a yield of 3.115 per cent), down from 96.920 (3.080 per cent) on Tuesday.

The December three-year bond futures contract was trading at 97.370 (2.630 per cent), down from 97.400 (2.600 per cent).