Canadian bonds slump following strong US jobs data

The Canadian government bonds slump on Monday as an unexpected strong United States jobs report encouraged optimism about better economic growth and demand in the world’s largest consumer of crude oil.

The yield on the benchmark 10-year bond which moves inversely to its price rose 3 basis points to 1.003 percent and the yield on the short-term 2-year bonds jumped more than 1 basis point to 0.498 percent by 13:00 GMT.

The June US Labour Department employment situation report revealed a considerable +287k increase in non-farm payrolls, well above market expectations for a +180k increase, as compared to the revised +11k result that occurred in May (previous was +38k).

Moreover, 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 rebounded after falling below $45 mark due to an increase in US drilling activity and a strong dollar. The International benchmark Brent futures rose 0.26 percent to $46.88 and West Texas Intermediate (WTI) jumped 0.22 percent to $45.51 by 13:00 GMT.

Lastly, Canadian stocks look to extend gains from the previous session Monday, but early signs point to struggles for the energy sector amid falling crude oil prices.

The S&P/TSX composite index finished Friday with a gain of 125.38 points, ending at 14,259.84. Strength was seen in most sectors due a strong U.S. jobs report and easing concerns about the Brexit fallout.