Canadian bonds rally as GDP growth sinks in May, crude tumbles

The Canadian government bonds rallied after data showed that the country’s gross domestic product sunk in May. Also, tumbling crude oil prices drove investors towards safe-haven buying.

The yield on the benchmark 10-year bond which moves inversely to its price fell 4 basis points to 1.028 percent and the yield on short-term 2-year note dipped 4-1/2 basis point to 0.540 percent by 13:00 GMT.

The Canada GDP declined 0.6 percent m/m in May (worst month in more than 7 years on Alberta wildfires), consensus wad for a 0.4 percent m/m fall, from up 0.1 percent m/m 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 crude oil prices fell more than 1 percent with increases in OPEC production and US oil rig additions continued to weigh on the market. The International benchmark Brent futures fell 1.33 percent to $42.95 and West Texas Intermediate (WTI) tumbled 1.18 percent to $41.11 by 12:30 GMT.

Lastly, Canadian stocks may struggle to continue its winning track on Tuesday morning amid sluggish commodities. Markets will remain closed on Monday on account of civic holiday.

The S&P/TSX Composite Index rose 0.21 percent at the close of the trading session to 14,582.72 on last Friday.