Canadian bonds plunge on upbeat economic data

The Canadian government bonds plunged on Friday after reading higher than expected consumer inflation data and stronger retail sales. The yield on the benchmark 10-year bond which moves inversely to its price rose more than 3 basis points to 1.136 percent and the yield on short-term 2-year note also jumped nearly 3 basis points to 0.595 percent by 12:30 GMT.

Canada’s consumer price index climbed 0.2 percent m/m in June, against market consensus of 0.1 percent m/m, from 0.4 percent in May. Core-CPI rose 2.1 percent (consensus was for 2.0 percent), from prior 2.1 percent.

On an annual basis, the Canadian consumer price index (CPI) rose 1.5 percent y/y in June, higher than the market consensus of 1.4 percent y/y, as compared to prior 1.5 percent in May.

Moreover, retail sales jumped 0.2 percent m/m in May, but the investors were expecting a flat reading, as compared to negative 0.8 percent in April. Core-retail sales bounced 0.9 percent m/m (consensus was for 0.3 percent m/m), from previous 1.3 percent.

On Thursday, Canada’s May wholesale trade jumped 1.8 percent m/m, higher than the market consensus of 0.2 percent m/m, as compared to 0.1 percent growth in April.

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 rose 0.26 percent to $46.30 and West Texas Intermediate (WTI) climbed 0.38 percent to $44.92 by 12:40 GMT.

In addition, investors will remain keen to focus on the next week’s May GDP  growth numbers.

Lastly, Canadian stocks are set for another strong session Friday, as rebounding oil prices could drive gains in the energy sector. The S&P/TSX Composite Index rose 0.22 percent at the close of the trading session to 14,565.83 on Thursday.