Adam Azzi has pleaded not guilty to murdering Lloyd Kennedy outside a Webb Street home in Lavington on November 6, 2016.

He has also pleaded not guilty to intimidating Nathan Vercoe with a knife.

Jayne Bullock, whose Neptune Drive home backs onto the Webb Street house, said she had heard a bang while watching television between 8pm and 8.30pm on the night.

"I put it down to someone's let off a cracker," she told the Wagga Supreme Court on Monday.

Dogs started barking but Ms Bullock didn't check out the disturbance.

She said she went outside to tidy up after her dog the following afternoon and "spotted a stainless steel knife" close to a tree.

She said she was "puzzled" how one of her knives could be in her yard.

"I was thinking, how could this be out here?" Ms Bullock said.

She said she picked up the knife, took it inside, and later heard a news report about the alleged stabbing.

"Then the penny dropped, kind of thing."

IN OTHER NEWS:

An Albury detective attended the home, picked up the knife while wearing gloves, and put it in a cardboard cylinder, the court heard.

The court heard police dusted a tin fence for fingerprints, with Ms Bullock noting "you could see where the finger marks were" and where someone had jumped the fence.

Prosecutor Paul Kerr last week told the court the knife was the alleged murder weapon.

He said prints lifted from the offence allegedly belonged to Azzi.

Ms Bullock said the knife didn't have anything on it, otherwise she wouldn't have touched it.

Jurors were shown a video of Azzi's former partner Lisa Restall, at the Albury Police Station, looking at images of knives taken from the Webb Street home.

In the video Ms Restall said she recognised some of the knives, but hadn't seen others.

Ms Restall, who lived at the Webb Street address where Azzi had been temporarily staying, gave evidence on Monday.

She said she had borrowed $200 from Nathan Vercoe, the late man's friend.

"He knew why, because I needed money for drugs," she told the court.

She remembered saying the money had to be repaid in the next couple of weeks and said Mr Vercoe had asked for the money three or four days later.

He had gone to her home and called her phone.

Leah Finnigan, said she had spoken to Ms Restall on the night of the incident.

"She was very upset," she said.

The trial continues on Tuesday.