Australian bonds pressured

Australian bond futures slipped on Tuesday, undermined by weakness in global debt markets and signs investors were gravitating back to equities as last week's bout of risk aversion proved all too brief.
The local market suffered in sympathy with Japanese government bonds, where short-term yields hit 10-year highs after jobless and spending data were surprisingly strong.
Yields in the euro zone were also on the rise after European Central Bank board member Axel Weber said interest rates there were not high enough and the central bank was prepared to go into restrictive territory if necessary. As a result, three-year bond futures lost 0.040 points to 93.785, having earlier touched a one-month low at 93.775. The 10-year bond contract shed 0.035 points to 93.975, taking it back toward a three-year trough of 93.960.
The market was also under pressure from speculation domestic economic data due later this week would prove strong, adding to the case for an interest rate rise from the Reserve Bank of Australia (RBA) in the longer term.
"Strong global growth, high commodity prices and resurgent domestic activity data suggest the next move in rates is most likely up," said Adam Donaldson, head of debt research at Commonwealth Bank.
"We look for above-consensusresults in this week's releases to reinforce this view." He noted local fund managers had been buyers of bond weakness recently, extending the duration of their portfolios to the highest in eight years. But this left the market vulnerable to a sell-off should the data here and in the United States prove as strong as some expect.
"Bond buying could easily turn to selling if we break through 6.0 percent on any further rise in US bond yields," said Donaldson. On Tuesday, implied 10-year bond yields had climbed to 6.03 percent, territory last visited in 2004, while US 10-year yields were up at 4.87 percent having risen 25 basis points in less than a month. The local data kicks off with retail sales for April on Wednesday which are expected to show a solid gain of around 0.4 percent following three very strong months.