Canadian government bonds gain tracking weak global cues

The Canadian government bonds strengthened on Thursday, following US trend as rate hike expectations by the Federal Reserve this summer diminished. The US 10-year treasury yield fell below 1.70 percent mark to 1.6815 percent, as compared to yesterday’s close of 1.707 percent.

The yield on the benchmark 10-year bonds which moves inversely to its price fell 3 basis points to 1.169 percent and the yield on the short-term 2-year bonds also jumped 2 basis point to 0.500 percent by 13:00 GMT.

US Treasuries climbed as investors were cautious ahead 30-year Bond auction later in the session. In the early Asian session today, the 10-year US Treasury yield dipped below the 1.70 percent to 1.678 percent, down 3 basis points for the first time since February.

In addition, 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 prices jumped beyond $51 mark as strong China imports aided positive trading sentiment amid the ongoing supply outages in Nigeria and falling U.S. crude oil inventories. The International benchmark Brent futures fell 1.16 percent to $51.90 and West Texas Intermediate (WTI) dipped 1.17 percent to $50.63 by 12:35 GMT.

Canada’s exports grew 1.5 percent to $41.8 billion in April. For the April month, the nation recorded trade deficit of $2.9 billion, narrowed from March’s deficit of $3.2 billion. Prices of exports grew 1.1 percent, whereas in terms of volume, exports rose 0.5 percent. Meanwhile, imports grew 0.9 percent to $44.7 billion, whereas in terms of volume and prices, it rose 0.8 percent and 0.1 percent respectively.

The Bank of Canada Governor Poloz in its previous comment said that US data have been 'pretty good' recently, with the weak May payrolls just a 'single data point'. He further added that the Canada-US economic divergence due to the oil shock remains. Can't say how much Canada's economy will rebound in Q3 after the fires.

Also, markets will now look forward to Bank of Canada Governor Poloz Speaks at 15:15 GMT.