Canadian bonds rise following gains in US counterparts

The Canadian government bonds strengthened on Friday, following U.S trend after reading weaker than expected May employment report, which dampened prospects for a rate increase by the Federal Reserve in the near term.

The yield on the benchmark 10-year Treasury note which moves inversely to its price fell 1-1/2 basis points to 1.305 percent and the yield on the short-term 2-year bonds also dipped 1 basis point to 0.601 percent by 12:40 GMT.

The May Labor Department employment situation report revealed overall only +38k increase in non-farm payrolls, well below market expectations for a +160k increase, as compared to the revised +123k reading in April (previous was +160k). This comes alongside a considerable decrease in the unemployment rate to 4.7 percent, below expectations for a 4.9 percent result, down from 5.0 percent.

Moreover, average hourly earnings increased +0.2 percent m/m, from revised +0.4 percent m/m reading seen in April, previous was +0.3 percent m/m. Additionally, average weekly hours held unchanged at 34.4 in May. Overall, weaker net revisions were seen in March and April (net -59k revisions).

The Canada international merchandise trade report revealed a narrower net deficit of CAD -2.94 billion in March, above expectations for a CAD -2.50 billion result as compared to the revised CAD -3.18 billion reading seen in February, previous was CAD -3.41 billion.

Markets will remain keen to focus on next week’s Ivey PMI (14:00 GMT) on Tuesday, employment report (12:30 GMT) on Friday. Meanwhile, Canada stock futures were little changed on Friday after weak U.S. jobs data reduced the prospect of an interest rate hike by the Federal Reserve in the coming months. June futures on the S&P TSX index were flat at 01:30 GMT.