Australian bond futures prices are falling after the US Federal Reserve's announcement of the third round of an economic stimulus package called quantitative easing (QE3).
UBS interest rate strategist Matthew Johnson said bond markets in Australia and the US were weakening on the back of the Fed's announcement, early Friday morning (AEST).
"Bonds are toast," he said.
"We are in the grip of a sell-off that has a fair bit of momentum.
"Much the same happened after QE1 and QE2. Those sell-offs were over 100 basis points in the US 10-year Treasury bonds and perhaps we're halfway through one of those at the moment."
Mr Johnson said there had been a temporary recovery in bond futures prices on Saturday morning after the release of weaker-than-expected US industrial production numbers for August, but the post-QE3 sell-off quickly resumed.
He said expected bonds to continue to weaken this week.
At 0830 AEST on Monday, the September 10-year bond futures contract was trading at 96.675 (implying a yield of 3.325 per cent), down from 96.805 (3.195 per cent) on Friday.
The September three-year bond futures contract was at 97.175 (2.825 per cent), down from 97.300 (2.700 per cent).
Mr Johnson said the next focus for bond markets would be Tuesday's release of the minutes of the Reserve Bank of Australia's (RBA) September board meeting where the cash rate was kept at 3.5 per cent for the third month in a row.
"With the current level of the Australian currency, they can't be far off making the decision for another rate cut," Mr Johnson said.