The Canadian domestic bond prices finish higher on Friday, driven higher by the weak US data, as well as by weak Canadian growth figures.
"The weak Gross Domestic Product (GDP) numbers that we saw out of Canada certainly keep hopes for a Bank of Canada rate cut on March 2 very much alive.
In fact, they substantially increase the odds," said Marc Levesque, senior economist at TD Bank.
The two-year bond rose 14 Canadian cents to C$100.70 to yield 2.602 percent, while the 10-year bond gained 56 Canadian cents to C$105.44 to yield 4.527 percent.
The yield spread between the two-year and 10-year bond moved to 192.5 basis points from 191.8 at the previous close.
The 30-year bond, due 2029, advanced seventy five Canadian cents to C$108.10 to yield 5.172 percent. In the United States, the 30-year treasury yielded 4.968 percent.
The three-month when-issued T-bill yielded 2.24 percent, down from 2.26 percent from the previous close.
The Canadian dollar rose on Friday as weak US economic growth figures sparked selling of US dollars, and convinced some the US Federal Reserve may keep interest rates low for a while.
The currency finished at C$1.3248 to the US dollar, or 75.48 US cents, up from with C$1.3300 to the US dollar, or 75.19 US cents, at Thursday's close.
The currency bounced between C$1.3230 and C$1.3359 during the session.
The US economy expanded at a solid 4.0 percent rate in the fourth quarter of last year, but that was below the mean of a Reuters poll of economists, which was 4.8 percent.
Meanwhile, Canada's economy stalled in November as the monthly gross domestic product was unchanged from October. Analysts had, on average, forecast a 0.2 percent rise.
The Canadian dollar initially fell on the weak domestic growth figure, but soon regained ground on the US currency as the below-expectation US Gross Domestic Product numbers sparked buying of the euro.
"I think that was key to turning sentiment around at least for the day," said George Davis, director of global research at RBC Capital Markets.
The softer-than-expected growth figure moderated the market view that the US Federal Reserve could raise rates over the summer, a notion that was starting to build, especially after the US central bank reworded its latest policy statement.
"I think it might change the rate outlook a little bit, but at the same time 4 percent growth is really nothing to sneeze at," Davis said.
The Fed took out a phrase about rates staying low for a "considerable period" and replaced it with "can be patient" with low rates in its statement, which the market took as suggesting the US central bank is closer to raising rates.
The Fed's unchanged rates and statement came a week after the Bank of Canada cut its overnight rate to 2.50 percent from 2.75 percent and signalled it was prepared to cut rates again.
Canada's overnight rate is still well above the one percent US fed funds rate.
This rate spread has helped drive the Canadian currency's sharp rise over the past year.
Comments
Comments are closed.