The Australian bond market is weaker after the release of strong US employment data at the end of last week.
The US economy created 257,000 new jobs in January, better than the expected gain of 230,000 that was expected.
UBS interest rate strategist Andrew Lilley said the data means that markets are now looking more firmly at the prospect of an interest rate hike by the US Federal Reserve later this year.
“Non-farm payrolls are the biggest reason to move in any market even though it’s just a read on the US. All kind of bond markets follow the US a little bit,” he said.
“The number of jobs created in the US in the past three months is the strongest it’s been for the last 17 years and the bang that makes in financial markets leads these people to readjust their expectations.”
Mr Lilley said the increased likelihood of a rate hike in the US means the Australian dollar will depreciate in value more quickly, which in turn decreases the chances of further interest rate cuts from the Reserve Bank of Australia.
“Our rates market now prices in a lesser chance of more rate cuts from the RBA in response to the bond movements overseas,” he said.
At 1630 AEDT on Monday, the March 2015 10-year bond futures contract was trading at 97.485 (implying a yield of 2.515 per cent), down from 97.580 (2.420 per cent) on Friday.
The March 2015 three-year bond futures contract was at 98.050 (1.950 per cent), down from 98.100 (1.900 per cent).
Mr Lilley said markets will be closely watching negotiations that Greece’s new anti-austerity government is seeking over its 240 billion euros ($ A349.68 billion) bailout.