Canadian bonds plunge ahead of BoC policy decision, crude oil rallies

The Canadian government bonds plunged Wednesday as investors await the Bank of Canada monetary policy decision scheduled to be released today at 14:00 GMT. Also, investors moved away from the safe-haven buying amid gains in riskier assets including equities and crude oil.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 1-1/2 basis points to 1.207 percent, the yield on long-term 30-year note also bounced 1-1/2 basis points to 1.849 percent and the yield on short-term 2-year bond climbed 1/2 basis point to 0.594 percent by 12:40 GMT.

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. Crude oil prices gain on signs crude inventories likely fell last week. The International benchmark Brent futures rose 1.60 percent to $52.48 and West Texas Intermediate (WTI) jumped 1.07 percent to $50.83 by 12:00 GMT.

The Bank of Canada (BOC) meets on Wednesday and will announce if there is any change in monetary policy. Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins are scheduled to hold a press conference following the bank's interest rate decision and release of its monetary policy report. We foresee that the BoC will leave its benchmark interest rates on hold considering recovery in oil prices and stronger economic data.

Lastly, Canadian stocks are set to open a stronger session on Wednesday, as rebounding oil prices could drive gains in the energy sector.

The S&P/TSX Composite Index rose 1.07 percent at the close of the trading session to 14,752.25 on Tuesday.