Bonds close firmer as investors seek safer grounds

The Australian bond market closed firmer as mounting Korean military tension drove investors to safer grounds.

As of 1630 AEDT on the ASX 24, the March 10-year bond futures contract went up to 94.430 (implying a yield of 5.570 per cent) from Friday's closing figure of 94.365 (5.635 per cent) while the March three-year bond futures contract rose to 94.730 (5.270 per cent) from 95.700 (4.300 per cent).

UBS Australia interest rates strategist Matthew Johnson noted, “There's a little more tension on the Korean peninsula, so there's been a move away from risk on the equity market."

Tensions on the Korean Peninsula were triggered by North Korea’s warning of a “catastrophe” in reaction to South Korea’s planned artillery drill. South Korea did launch live firing drills on a disputed island on Monday after an emergency meeting held on Sunday by the U.N. Security Council failed to come up with a resolution to address the crisis.

The market relaxed after North Korea in the end announced that it will not retaliate as it shrugged off South Korea’s "reckless provocations" finding it "not worth reacting (to)."

Johnson said that the bonds would remain trading in a narrow range this week as thin trading volumes is expected this time of the year.