Canadian bonds sag

The Canadian bond prices sank on Friday as the firm US jobs data cemented expectations of next week's rate hike.
"The headline number didn't come in as low as feared and the unemployment rate unexpectedly fell, so the Fed is firmly on track to continue raising interest rates later this month," said Sal Guatieri, senior economist at Bank of Montreal. Thin markets ahead of the Labour Day holiday weekend compounded the losses, analysts said, as did fears that the jobs numbers would come in lower than forecast following weak totals in the previous two months.
"The market was kind of braced for that, but combined with the upward revisions to the two previous months, it suggests that employment is picking up quite nicely," said Guatieri.
With signs pointing to a strengthening economy, analysts said prices should continue to fall as yields follow interest rates higher.
The two-year bond fell 16 Canadian cents to C$99.78 to yield 3.126 percent, while the 10-year bond retreated 57 Canadian cents to C$102.19 to yield 4.715 percent.
The yield spread between the two-year and 10-year bond moved to 158.9 basis points from 161.0 at the previous close.
The 30-year bond, due 2029, fell 72 Canadian cents to C$107.72 to yield 5.191 percent. In the United States, the 30-year treasury yielded 5.052 percent.
The three-month when-issued T-bill yielded 2.33 percent, up from 2.27 percent at the previous close.
The Canadian dollar finished flat against the greenback on Friday, but rose against other major currencies, as a strong US jobs report boosted expectations for a Bank of Canada rate hike next week.