Bond prices calm after storm in US

Bond futures prices levelled off in Friday trading after a rally sparked by expectations the US Federal Reserve will not wind down its massive economic stimulus program soon.

Bond futures prices levelled off in Friday trading after a rally sparked by expectations the US Federal Reserve will not wind down its massive economic stimulus program soon.

There was an expectation last month that the $US85 billion ($88 billion) a month bond purchase program would be wound down, but the two week US government shutdown has changed that.

Typically, the end to the US budget shutdown would see bond prices fall because of improved market sentiment.

CMC Markets strategist Michael McCarthy said the new expectations for the Fed's tapering helped bond prices rally in overnight trade, but they failed to gain much ground during local trade.

"We have seen a fairly calm reaction overall to the events of this week," he said. "This is against what will become normal trading conditions. Soon local markets will be speculating again about the potential for Fed's tapering and of course the impact of that will be global."

The December 10-year bond futures contract was trading at 95.920 (implying a yield of 4.080 per cent), up from 95.900 (4.100 per cent) on Thursday. The three-year contract was at 96.910 (3.090 per cent), up from 96.900 (3.100 per cent).

A backlog of US economic data delayed because of the shutdown will be released early next week.

Most will be released on Monday, but the key indicator of employment, non-farm payrolls for September, will be released on Tuesday. Meanwhile, the Australian dollar was heading higher on expectations the Fed won't wind back its stimulus program any time soon.

Late in the session on Thursday it was trading at US96.27 cents, US95.52 cents.

"We're looking pretty strong here," Easy Forex currency dealer Tony Darval said.

"Some people are saying it could be mid-2014 before the Fed tapers and the whole US dollar weakness theme could be a major trend, and that could get the Aussie dollar up to 98 or 99 US cents, even parity has been talked about by a few traders.

"If stocks continue to rally then the Aussie will outperform most currencies, except for the kiwi dollar," he said.

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