The Canadian domestic bond prices strengthened for the second straight day on Friday as the retail sales weakness prompted buying after several weeks of declines.
Government debt prices gained ground on the retail sales report, but, with a technically driven rally boosting US treasuries sharply, US-Canada yield spreads narrowed.
Gains were capped partly because the August retail figures were only the fourth monthly drop in 20 months, while the Bank of Canada's rate hike this week and subsequent comments have cemented expectations of continued monetary tightening.
Rate hikes generally drive bond prices lower, as their fixed payments look less attractive when compared with higher yields on short-term investments.
It was the second straight day of price gains, but that followed about seven weeks of declines as the Bank of Canada sounded a more hawkish tone.
In addition to next week's data, Bank of Canada Governor David Dodge and Deputy Governor Paul Jenkins will appear before a Senate banking committee on Wednesday to talk about the Monetary Policy Report.
The two-year bond rose 2 Canadian cents to C$98.54 to yield 3.479 percent, while the 10-year bond climbed 26 Canadian cents to C$103.73 to yield 4.027 percent.
The yield spread between the two-year and 10-year bond moved to 54.8 basis points from 57.1 at the previous close.
The 30-year bond gained 65 Canadian cents to C$113.04 to yield 4.246 percent. In the United States, the 30-year treasury yielded 4.601 percent.
The three-month when-issued T-bill yielded 3.08 percent, up from 3.07 percent at the previous close.
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