The Canadian bond prices tumbled on Friday, as the strong data in both Canada and the United States eased expectations for interest rate cuts. While Canadian economists have been forecasting no rate movement from the Bank of Canada, bond prices have suggested the market is positioned for a cut around mid-year.
However, some analysts have noted the recent equity market selloff has inflated bond prices somewhat, making them not a good gauge of the market's rate expectations. Bond prices usually move in the opposite direction of interest rates.
Either way, Friday's strong data calmed rate cut expectations, as it built on recent reports suggesting the economy is recovering faster than previously thought. "The string of positive reports for Canada continues and suggests that there is good momentum going into the first quarter of the year," said HSBC Canada strategist Stewart Hall.
Analysts said the only point of concern in the jobs data was a loss of 34,700 factory jobs, showing continued pressure on the sector. The two-year bond dropped 15 Canadian cents to C$100.43 to yield 3.991 percent, while the 10-year bond fell 55 Canadian cents to C$99.61 to yield 4.051 percent. The yield spread between the two-year and 10-year bond moved to 6.0 basis points from 7.8 at the previous close.
The 30-year bond slid C$1.00 to C$126.05 to yield 4.116 percent. In the United States, the 30-year treasury yielded 4.720 percent. The three-month when-issued T-bill yielded 4.18 percent, unchanged from the previous close.
The Canadian dollar jumped to a one-week high against the US currency on Friday, as data showing recovering export activity and a still-strong jobs market built the case that Canada's economy is recovering from last year's rough spot.
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