Bonds strengthen after weak ECB outcome

Australian bond prices have risen after European Central Bank's (ECB) much anticipated immediate strong response to the region's debt crisis failed to materialise.

At 0830 AEST on Friday, the September 10-year bond futures contract was trading at 97.040 (implying a yield of 2.960 per cent), up from 96.940 (3.060 per cent) on Thursday.

The September three-year bond futures contract was at 97.530 (2.470 per cent), up from 97.390 (2.610 per cent).

The ECB and the Bank of England (BoE), at their separate policy meetings on Thursday night (AEST), both chose to take no immediate policy measures, apart from making a commitment to future action if need be.

Expectations for the ECB meeting increased last week when president Mario Draghi said he would do "whatever it takes" to protect the euro from the region's debt crisis.

One move that was expected was an ECB program of buying government bonds from debt crippled euro zone members to reduce bond yields and, therefore, government borrowing costs.

St George chief economist Hans Kunnen said the weak statements prompted a flow of funds to the Australian bond market.

"The ECB will not take immediate action to counter growing financial market tensions in Europe but again promised to engage in operations that would be of a size adequate to reach its objective," he said.

"Safe-haven bond markets saw an inflow of funds associated with the BoE and ECB announcements."

Markets will now watch for Friday night's release of US non-farm payrolls data for July, the key indicator for American employment growth.

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