The Australian bond market closed firmer as equity and commodity prices weakened on the back of weaker US economic data, increasing the risk aversion of investors.
At 1630 AEDT, the yield on the Commonwealth Government March 2019 bond was at 3.956 per cent, down from Monday's close of 4.100 per cent, while the yield on the April 2012 bond was at 3.165 per cent, down from 3.288 per cent.
On the Sydney Futures Exchange, the March 10-year bond futures contract price was 96.035, up from Monday's close of 95.895, while the March three-year bond futures contract price was 96.845, up from 96.715.
The local bond market opened firmer on Tuesday, with 10-year futures contract prices marginally outperforming shorter-dated three-year futures for most of the day, as investors took their cue from Wall Street's slide.
The broadly based S&P 500 index fell 2.26 per cent on Monday night, with the local All Ordinaries index ending Tuesday's session almost one per cent weaker.
An increase in risk aversion was also reflected in falling commodity prices, with the New York price of light sweet crude oil falling by 1.25 per cent to $US37.13 a barrel.
ICAP senior economist Adam Carr said a combination of weak US economic data in recent weeks was driving the flight back to fixed-income assets, and away from risky assets.
"I can't pinpoint one data piece that has thrown the market back," he said.
"(US) payrolls obviously were an important marker but the result came in as expected ... it's a confluence of data releases.
"Equity markets have sold off (and) there's a renewed flight to safety."
Mr Carr said the Australian bond market had rallied during the past week, reversing the sell-off in early January, as investors took the view the US Federal Reserve was more likely to engage in "quantitative easing", whereby the central bank puts more cash into the banking system because interest rates are too low to be cut further.
Several weeks ago, investors were expecting the US Treasury to issue more government bonds.
Mr Carr said the Australian bond market would weaken on Wednesday if domestic housing finance data for November caused financial markets to expect smaller interest rate cuts.
Economists expect the home loans data to show a one per cent rise.
"There's a view out there the Reserve Bank won't be as aggressive as the market is pricing in," Mr Carr said.
The Reserve Bank of Australia (RBA) slashed the overnight cash rate by one percentage point to a six-year low of 4.25 per cent in December.
