Canadian bonds rise modestly in subdued trade; inflation and GDP data in focus

The Canadian bonds traded modesty firmer in thin trading activity during a relatively quiet Monday session that witnessed data of little significance. Also, markets will remain keen to focus on the inflation and October gross domestic product (GDP) data scheduled to be released later in this week.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 1.82 percent, the yield on long-term 30-year Treasury dipped 1 basis point to 2.41 percent and the yield on short-term 2-year bond slid 1/2 basis point to 0.81 percent by 12:30 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 jumped as investors expect tighter crude oil market in 2017. The International benchmark Brent futures rose 0.36 percent to $55.38 and West Texas Intermediate (WTI) climbed 0.52 percent to $52.17 by 12:00 GMT.

Moreover, the Federal Open Market Committee increased the fed funds rate to a 0.50-0.75 percent range last Wednesday, as widely expected. The statement noted that information received since the November meeting indicates that the labour market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.

Also, the new projections showed that the central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates.

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

The S&P/TSX Composite Index rose 0.22 percent to 15,252.20 at the close of the trading session on Friday. While at 12:00 GMT, the FxWirePro's Hourly Canadian Dollar Strength Index remained slightly bullish at +82.30 (higher than +75 represent a bullish trend).