Both the Australian bond market and the Aussie dollar weakened after news that the US Federal Reserve will slow down on its bond-buying spree, reports Australian Associated Press.

Australian bond futures weakened as dealers fear that the US Federal Reserve chairman Ben Bernanke hinted that the stimulus spending will have to slow down.

Sally Auld, an interest rate strategist at JP Morgan, revealed that the Fed's measure in easing its bond purchasing will weaken the US and local bond markets.

"That all conspired to push yields a little bit higher and we moved largely in sympathy with that," Ms Auld said in an interview with Financial Times.

Later this week, Mr. Bernanke will be questioned about the Fed's stand on the $US85 billion-a-month bond buying program, more popularly known as quantitative easing (QE).

While the Fed's Federal Open Market Committee, which is in charge of purchasing bonds, is not expected to introduce a sort of rescue plan, Ms Auld thinks that Bernanke would "feel compelled to provide some sort of guidance to the market."

Meanwhile, minutes from the Reserve Bank of Australia's June meeting can reveal that the July interest rate may be slashed by as much as 35 per cent.

As of 8:30 AEST, the September 10-year bond futures contract dropped to 96.575, down 2 cents from Monday's 96.595.

Global financial markets, meanwhile, remain optimistic that the stimulus measures will continue. Imre Speizer, who works as a senior analyst with Westpac New Zealand, revealed that the U.S. currency rallied against other currencies, specifically the Australian dollar, New Zealand Kiwi, Canadian dollar and Swedish kroner. This may suggest that the QE dilution may be highly unlikely, reports Australian Associated Press.

"It's only a small risk the Fed would signal a tapering this week. It's quite early for them to do so, but it's possible," Speizer revealed.

PHL INFLATION-BASED BONDS

Rounding up the Asia-Pacific bond market's update, the Philippines, meanwhile, is about to sell the first batch of inflation-linked bonds later this year, reports Reuters. This will happen before the country rejoins the global debt market in 2014.

The treasury aims to meet at least 10 percent of the country's fiscal demands overseas by selling $1 billion worth of notes and tapping another $1 billion from World Bank and Asian Development Bank, and other lenders.

"Inflation-linked bonds will allow us to lower our borrowing costs as we assure investors that we will meet our inflation (PHC2II) target," Treasurer Rosalia de Leon tells Bloomberg, as she explains how the government is "looking to offer modest-sized global bonds as many investors seek them."