The Canadian bond prices gained a little ground across the board on Friday, after some recent losses, helped by a report that said a US rate hike should not be expected too soon.
Economic reports showed US industrial production unexpectedly fell in March while consumer sentiment slipped in April.
US industrial production dipped 0.2 percent, a decline that the Fed attributed to utilities' output due to unseasonably warm weather, while warm weather boosted the housing market, with new starts posting the biggest monthly gain since May 2003.
Recent US data have boosted the case for higher rates, and US interest rate futures were pricing in a near 100 percent chance that the Fed will raise rates in August.
"The bond markets realised that inflation in the United States is really not that much of a huge concern," said Carlos Leitao, chief economist at BLC Securities.
"The Fed is not going to hike rates right away on May 4 and yields are back up to more reasonable levels"
The two-year bond rose 17 Canadian cents to C$100.55 to yield 2.732 percent, while the 10-year bond climbed 41 Canadian cents to C$104.61 to yield 4.623 percent.
The yield spread between the two-year and 10-year bond moved to 189.1 basis points from 186.3 at the previous close.
The 30-year bond, due 2029, gained 66 Canadian cents to C$107.18 to yield 5.232 percent. In the United States, the 30-year treasury yielded 5.176 percent.
The three-month when-issued T-bill yielded 1.94 percent, down from 1.95 percent at the previous close.
The Canadian dollar slipped to its lowest closing in six weeks on Friday as an aggressive view on US interest rates helped strengthen the greenback.
The Canadian dollar closed at C$1.3461 to the US dollar, or 74.14 US cents, down from C$1.3432, or 74.44 US cents, at Thursday's close.
With a bare Canadian economic calendar, attention was swirling around the possibility of an earlier than expected rate increase from the US Federal Reserve, which could figure into when the Bank of Canada will begin to tighten rates.
"This reflects a huge shift in expectations between a Fed that was going to stand pat through the end of the year and a Fed that is likely to move by the end of the summer," said Derek Burleton, senior economist at Toronto-Dominion Bank.
"At the same time, the Bank of Canada has simply moved to a balanced assessment of risk and likely the Fed would be moving before that of the Bank of Canada."
A press conference by Bank of Canada Governor David Dodge in New York, which discussed the central bank's April Monetary Policy Report, offered little new information.
On Thursday, when the report was first issued, the central bank said it did not expect the economy to reach full potential until the third quarter of 2005.
In the ensuing news conference and in his first public comments since the central bank cut interest rates on Tuesday, Dodge said the economy faces a "tricky period of adjustment" over the next year to 18 months, although he repeated Tuesday's line that the risks were balanced.
Many market observers believe the Bank of Canada's rate-cutting campaign ended with Tuesday's move, which brought the overnight rate to 2 percent from 2.25 percent, and are now speculating on when rates will start to rise again.
Comments
Comments are closed.