The Australian debt market showed optimism by opening strong before the release of the Reserve Bank of Australia's (RBA) interest rate decision.

The September 10-year bond futures contract was up at 95.090 (4.910 percent). Monday's closing figure was 95.080 (4.92 percent). September three-year bond futures also went up. The bonds are now 95.460 (4.54 percent) from 95.440 (4.56 percent).

European stock markets extended the push which started on Monday. However, trading was sluggish because Wall Street was closed for the Labor Day public holiday.

RBC Capital markets fixed interest strategist Su-Lin Ong said traders will be waiting for the RBA decision which comes out at 1430 (AEST), as well as, the new minority government composition.

According to Ong, “Really, the key event will be the RBA.” A minority government will not be favorable for the bonds, she claims because “It'll probably be a fractious government, with the risk of fiscal slippage given the need to take into account those three strong independents and potentially whoever else is in there.”

The interest strategist explained further that a Labor minority government would weigh heavily on bonds than a coalition minority government.

Meanwhile, the Independents Tony Windsor, Rob Oakeshott, and Bob Katter still have to meet at 2 p.m. in order to seal the fate of the minority government.