Canadian bond prices drop on strong jobs

The Canadian bonds fell hard on Friday on the double hit of strong Canadian and US jobs data. US Treasuries' losses were slightly steeper, widening US-Canada yield spreads. The retreat took the two- and ten-year bonds to their lowest levels in about a month as the news - combined with other recent strong data - persuaded some that the Bank of Canada might soon be ready to raise interest rates. However, while the headline jobs number was better than expected, analysts said the details were messy, as the manufacturing sector lost jobs, while the gains largely were in the public sector. "I think the case that has to be presented to the bank for moving has to be pretty strong, and there's enough questions marks about the employment report that they can afford to wait," said Mark Chandler, senior economist at Scotia Capital.
The bank has been on hold since last October, when signs emerged that the 2003-2004 rise of the Canadian dollar was hurting the economy by making exports less competitive.
Speaking in Ottawa early in the session, Bank of Canada Governor David Dodge reiterated his stance that rates will have to rise over time.
He also said low interest rates are spurring firm growth in domestic demand, which is making up for the negative effects on the manufacturing sector of the strong Canadian dollar and foreign competition.
The two-year bond lost 31 Canadian cents to C$99.63 to yield 3.184 percent, while the 10-year bond fell 77 Canadian cents to C$105.76 to yield 4.228 percent.
The yield spread between the two-year and 10-year bond moved to 104.4 basis points from 109.9 at the previous close.
The 30-year bond dropped 97 Canadian cents to C$117.45 to yield 4.633 percent. In the United States, the 30-year Treasury yielded 4.630 percent.
The three-month when-issued T-bill yielded 2.50 percent, up from 2.47 percent at the previous close.
The Canadian dollar drove higher versus the US currency on Friday, getting a boost from robust April jobs data, then pushing higher as the greenback was hurt by concerns that China could soon float the yuan.
The Canadian currency finished at C$1.2418 to the US dollar, or 80.53 US cents, up from C$1.2454 to the US dollar, or 80.30 US cents, at Thursday's close.