The Canadian bond prices ended higher on Friday across the curve as the market continued price out the idea that central banks in North America will be raising interest rates any time soon.
Reports earlier this week in the Wall Street Journal and Financial Times cited senior Fed officials who said the US central bank was unlikely to raise rates in the next few months unless the inflation outlook worsened. That opened the door for bond prices to reclaim a portion of the steep losses suffered last week when the Bank of Canada surprised the market when it left its key rate steady instead of following expectations for a cut.
"I feel like the dominant theme of the week is that central bankers believe the market has gone too far in pricing in rate hikes," said Eric Lascelles, chief economics and rates strategist at TD Securities. "The market hemmed and hawed on that and I think ultimately it has decided to properly absorb that message and to reduce the odds of rate hikes.
The two-year bond rose 11 Canadian cents to C$100.84 to yield 3.298 percent. The 10-year bond gained 41 Canadian cents to C$101.37 to yield 3.817 percent. The yield spread between the two-year and 10-year bond was 51.9 basis points, down from 52.0 at the previous close. The 30-year bond added 82 Canadian cents to C$114.22 for a yield of 4.151 percent. In the United States, the 30-year Treasury yielded 4.725 percent. The three-month when-issued T-bill yielded 2.70 percent, down from 2.72 percent at the previous close.
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