After underperforming US Treasuries all week, Canadian bonds managed to make up some ground with the US Treasury market closed on Friday and dealers still believing the US Federal Reserve is not set to raise interest rates.
"This week the view started to shift towards more of a view that the Fed is not going to raise rates any time soon," said Carlos Leitao, chief economist at Laurentian Bank of Canada in Montreal. "Inflation concerns are important, yes, but the US economy is still very week and hence the Fed is not going to rock the boat."
The Ivey Purchasing Managers Index showed Canadian business purchasing activity rose to 69.6 in June from 62.5 in May. That was better than market expectations for a reading of 62.0. The Ivey employment index dropped to 58.2 from 59.3 in the previous month, while the prices index climbed to 84.1 from 82.9.
The two-year bond rose 4 Canadian cents to C$101.04 to yield 3.179 percent. The 10-year bond increased 25 Canadian cents to C$102.18 to yield 3.710 percent. The yield spread between the two-year and 10-year bond was 53.1 basis points, down from 53.6 at the previous close.
The 30-year bond rose 23 Canadian cents to C$115.95 for a yield of 4.057 percent. In the United States, the 30-year Treasury yielded 4.535 percent. The three-month when-issued T-bill yielded 2.49 percent, down from 2.51 percent at the previous close.
The Canadian dollar limped to a lower close versus the US dollar on Friday and capped off its first losing week in three after a thin, quiet session in which moves were amplified because US markets were closed for Independence Day.
The Canadian dollar closed at C$1.0200 to the US dollar, or 98.04 US cents, down from C$1.0188 to the US dollar, or 98.15 US cents, at Thursday's close.For the week the Canadian dollar fell 0.9 percent.
But the drop in the Canadian currency did not draw too much concern in a week of trading made slow by the July 4 US holiday and Tuesday's Canada Day holiday. "Liquidity is much lower than usual and not surprisingly the markets are illiquid," said Matthew Strauss, senior currency strategist at RBC Capital Markets.