The Canadian bond prices rode the coattails of their US counterparts on Friday, and also took comfort in the details of the domestic data.
"We have a pretty positive tone in the US market that's helping us along. Mostly it's a combination of economic statistics and a full court press of Fed speakers this week. On top of that we got details from the Q4 report that were very soft," said Mark Chandler, senior analyst at Scotia Capital.
The two-year bond rose 2 Canadian cents to C$101.06 to yield 2.374 percent, while the 10-year bond gained 41 Canadian cents to C$106.66 to yield 4.366 percent.
The yield spread between the two-year and 10-year bond moved to 198.9 basis points from 203.1 at the previous close.
The 30-year bond, due 2029, jumped 72 Canadian cents to C$109.87 to yield 5.053 percent. In the United States, the 30-year treasury yielded 4.847 percent.
The three-month when-issued T-bill yielded 2.10 percent, down from 2.11 percent from the previous close.
The Canadian dollar recouped the week's losses on Friday as the US dollar's momentum slowed and figures showed the domestic economy grew at a faster-than-expected pace in the last quarter of 2003.
The currency snapped a two-day losing streak and finished at C$1.3357 to the US dollar, or 74.87 US cents, up from C$1.3422 to the US dollar, or 74.50 US cents, at Thursday's close.
After a roller-coaster week, largely driven by US dollar momentum, it finished slightly higher than last week's close. Early in the day, the Canadian dollar brushed the C$1.35 level, but failed to push through, and a round of US dollar profit-taking set in.
"The Canadian dollar is stronger and that's consistent with the stronger than expected GDP report, but some of the details in the report were less promising for growth at this pace to persist," said Paul Ferley, assistant chief economist at Bank of Montreal.
"The bigger factor was a generalised weakening in the US dollar, which seemed to come under pressure from mixed US data."
Statistics Canada said the economy grew at an annualised rate of 3.8 percent in the fourth quarter, above average market forecasts of 3.1 percent, but in line with central bank projections that were reduced last month.
And with the central bank calling for inflation to stay below its 2 percent target until the end of 2005, economists said a rate cut was a sure thing on March 2, when the Bank of Canada next sets monetary policy.
All 13 dealers, surveyed by Reuters shortly after a slightly stronger-than-expected read on fourth-quarter growth, said they expected Canada's central bank to cut its key overnight rate by 25 basis points to 2.50 percent.
Further signs of domestic economic weakness could firm expectations of additional rate cuts, which would likely put pressure on the Canadian dollar and boost bond prices.