Canadian bonds gain as oil prices tumble after Trump win

The Canadian government bonds gained Wednesday as crude oil prices tumbled after the United States Republican candidate Donald Trump pinned his victory against Democrat opponent Hillary Clinton in the 2016 presidential election.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1-1/2 basis points to 1.255 percent and the yield on short-term 2-year bond dipped 4 basis points to 0.541 percent by 12:40 GMT.

We expect the Treasury prices to remain volatile until market digests Trump’s victory completely. Trump's anti-trade stance would jeopardise trade with China and other emerging market economies. His anti-immigration policies could also create labour shortages in the U.S. economy. Business confidence would take a hit and new downside risks to the economy are likely to reduce the probability of a December rate hike by the Federal Reserve.

Trump’s victory is the latest political shock to financial markets, following the U.K.’s June vote to leave the European Union. Also, Trump, who compared his candidacy to the Brexit vote, has criticized Yellen, saying she kept rates too low during Obama’s tenure and suggested that if he won he’d probably nominate someone else to lead once her term expires in 2018, reported Bloomberg.

Moreover, the Canadian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Canada's target. The International benchmark Brent futures fell 0.41 percent to $45.95 and West Texas Intermediate (WTI) tumbled 0.58 percent to $44.72 by 12:40 GMT.

Lastly, Canadian stocks may struggle to continue its winning track Wednesday morning amid sluggish commodities.

The S&P/TSX Composite Index rose 0.03 percent at the close of the trading session to 14,656.84 on Tuesday.