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Canadian bonds rally as investors turn cautious ahead of BOC policy decision, weak crude

The Canadian government bonds rallied on Wednesday as investors remained cautious ahead of the Bank of Canada monetary policy decision. Also, weak crude oil prices drove investors towards safe-haven buying.

The yield on the benchmark 10-year bond which moves inversely to its price fell more than 5 basis points to 1.007 percent, the yield on the long-term 30-year bonds fell 4 basis points to 1.611 percent and the yield on short-term 2-year note dipped 3-1/2 basis points to 0.471 percent by 13:00 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.

Today, crude oil futures fell as investors took gains after oil prices surged nearly 5 percent in the previous session, partly on the back of a forecast increase in demand next year.

Also, a surprise build in U.S. crude stocks and a stronger U.S. dollar which gained on Wednesday against a basket of currencies weighed on oil prices. The International benchmark Brent futures fell 1.20 percent to $47.88 and West Texas Intermediate (WTI) tumbled 0.90 percent to $46.38 by 12:40 GMT.

Investors will remain keen to focus on the monetary policy decision due at 14:00 GMT, the market will primarily focus on the comments made by the Governor for any signals about future policy.

According to recent Reuters poll, the central bank will keep interest rates unchanged for at least another year given the still-depressed price of oil, a major export, and risks to global economic growth from Britain's shock vote to leave the European Union.

Over 40 economists polled by Reuters unanimously forecast the BoC would hold rates at 0.5 percent at its July 13 meeting. Rates are forecast to rise in late 2017 and reach 1.00 percent by mid-2018, according to the poll.

Lastly, the Canadian stocks market may take a breather after stocks raced higher in the previous three sessions. Widespread gains have helped Toronto's main index to its highest levels in almost a year, but early signs are pointing to more subdued performance today. The S&P/TSX Composite Index was up 119.70 points, or 0.83 percent, to 14,477.67, a third straight triple-digit advance.

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