Canadian bond prices drop

The Canadian bond prices again followed US treasuries lower on Friday as some stronger US economic figures made the market believe the Fed really is on a course to raise US interest rates at a measured pace.
"We're feeding off incredibly overbought positions in the bond market both in the US and Canada," Ebata said. "The market likes to trade to extremes these days and we've sort of overdone the down cycle on interest rates and the market's taking it all back."
Bullish early figures on US auto sales in September heralded what might be a bigger than expected rise in third-quarter gross domestic product.
Analysts said sales of North American-made vehicles looked to be running at a 14.8 million annual rate, well above forecasts of 13.5 million.
The rate-sensitive two-year bond fell 5 Canadian cents to C$99.87 to yield 3.315 percent, while the 10-year bond dropped 36 Canadian cents to C$102.54 to yield 4.669 percent.
The yield spread between the two-year and 10-year bond moved to 135.4 basis points from 133.3 at the previous close.
The 30-year bond fell 52 Canadian cents to C$108.45 to yield 5.141 percent. In the United States, the 30-year treasury yielded 4.944 percent.
The three-month when-issued T-bill yielded 2.50 percent, compared with 2.48 percent at the previous close.
The Canadian dollar gave back a bit of Thursday's startling gain against the US dollar on Friday but stayed in a holding pattern above 79 US cents, buoyed by reluctance to make moves as the G7 finance ministers meeting was getting under way in Washington. The Canadian dollar closed at C$1.2624 to the US dollar, or 79.21 US cents, down from C$1.2616, or 79.26 US cents, at Thursday's close.
The currency leaped to its highest level since May 1993 on Thursday on worries that the Group of Seven meeting on Friday and Saturday would try to undermine the greenback's strength in an effort to narrow the yawning US trade deficit.
"Traders really got the taste of the US dollar bear yesterday and while everyone was expecting the market might reverse itself, all of a sudden they got some big (US dollar) sellers," said David Ebata, managing Canadian markets analyst at Thomson IFR.