A steep bond rally turned deeply negative, despite a weak US jobs report on Friday. The Canadian bonds soared along with their US counterparts after the US jobs report suggested the pace of US interest rate hikes may slow after eight consecutive increases. But the sharp gains, the second set this week, later inspired some profit-taking to send them lower. Bonds have rallied sharply for nearly a month and one analyst said the market was getting out of sync with the fundamentals.
"When you don't get a rally in bonds on such a weak number as that, that's a surefire signal to tell you that the rally in bonds is over, or will soon be over," said Andrew Pyle, senior analyst at Scotia Capital.
The two-year bond lost 5 Canadian cents to C$100.33 to yield 2.826 percent, while the 10-year bond fell 57 Canadian cents to C$108.38 to yield 3.886 percent. The yield spread between the two-year and 10-year bond moved to 96 basis points from 101.5 at the previous close.
The 30-year bond shed 87 Canadian cents to C$122.73 to yield 4.339 percent. The comparable US treasury yielded 4.286 percent. The three-month when-issued T-bill yielded 2.45 percent, unchanged from the previous close.
The Canadian dollar finished at C$1.2475 to the US dollar, or 80.16 US cents, up slightly from C$1.2483 to the US dollar, or 80.11 US cents, at Thursday's close.
The Canadian dollar ran to its highest level in more than three weeks, at C$1.2425, after a report showed the US economy had added just 78,000 jobs last month, far fewer than the expected 185,000, and a sharp slowdown after a 274,000 job surge in April.
It was the weakest month for US nonfarm job growth since August 2003, although the unemployment rate edged to 5.1 percent, its lowest level since September 2001.
But, the US dollar showed a resilient face and the Canadian dollar subsequently gave up most of its gains against the greenback.