Canadian bonds strengthen on weak crude oil prices; inflation data eyed

The Canadian government bonds strengthened on Tuesday, following weak crude oil prices. Also, investors await wholesale and consumer inflation data, scheduled to be released on July 21-22.

The yield on the benchmark 10-year bond which moves inversely to its price fell 1 basis points to 1.090 percent and the yield on short-term 2-year note dipped 1/2 basis point to 0.574 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, oil prices eased as concerns over a crude and refined fuel surplus outweighed an expected cut in U.S. shale production. The International benchmark Brent futures fell 0.68 percent to $46.62 and West Texas Intermediate (WTI) tumbled 0.64 percent to $44.95.

Last week, the central bank announced no change in the overnight rate target of 0.50 percent, in line with market expectations. Moreover, the BOC in its statement mentioned that the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast.

According to the statement, real GDP grew by 2.4 percent in the first quarter of 2016, against market expectations of -1.0 percent contractions, which weighed down by volatile trade flows, uneven consumer spending, and the Alberta wildfires. The statement also justified that economy is expected to grow further in the third quarter of 2016 due to stabilising crude oil prices in the international market.

Lastly, Canadian stock futures indicated a lower start for Canada's main stock as investors turned risk-averse amid geopolitical worries and weak crude oil prices.

The S&P/TSX Composite Index rose 0.35 percent at the close of the trading session to 14,532.40 on Monday.