The Canadian bond prices followed US treasuries lower on Friday, as growing inflation concerns in the United States built worries about more Federal Reserve interest rate increases. "Basically, Canadian bonds completely followed the US treasury lead lower," said Doug Porter, deputy chief economist at BMO Nesbitt Burns.
"I think the two dominant stories this week were concerns over the mounting fiscal cost of reconstruction after Hurricane Katrina in the US, and concern in the bond market about inflation pressures." The US central bank has raised its fed funds rate 10 straight times and looks primed to boost rates again next week.
The Bank of Canada raised rates last week for the first time in nearly a year, and is expected to implement at least one more increase this year. The domestic data calendar will pick up next week, with wholesale trade data on Tuesday, retail sales on Wednesday and consumer inflation on Thursday. As well, Bank of Canada Governor David Dodge will give a speech in Toronto on Thursday.
The two-year bond retreated 10 Canadian cents to C$99.07 to yield 3.193 percent, while the 10-year bond fell 38 Canadian cents to C$104.67 to yield 3.915 percent.
The yield spread between the two-year and 10-year bond moved to 72.2 basis points from 72.3 at the previous close.
The 30-year bond lost 62 Canadian cents to C$113.78 to yield 4.208 percent. In the United States, the 30-year treasury yielded 4.556 percent. The three-month when-issued T-bill yielded 2.83 percent, up from 2.82 percent from the previous close.
The Canadian dollar climbed against the greenback and hit multiyear highs versus the euro and yen on Friday, helped by weak US data and concerns over this weekend's German election. The Canadian dollar finished at C$1.1787 to the US dollar, or 84.84 US cents, up from C$1.1848 to the US dollar, or 84.40 US cents, at Thursday's close.