Canadian 10-year bond yields hit highest since November last year following rally in energy prices

The Canadian 10-year bond yields hit highest since November last year on Thursday, following a rally in energy prices. Also, stronger-than-expected third-quarter GDP data drove-out investors from safe-haven buying.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 5 basis points to 1.63 percent, the yield on long-term 30-year Treasury inched 5 basis points to 2.21 percent and the yield on short-term 2-year bond bounced 1-1/2 basis points to 0.71 percent by 12:50 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. Crude oil prices rallied after OPEC agreed to output cuts in OPEC ministerial gathering at Vienna yesterday. The International benchmark Brent futures rose 1.41 percent to $52.60 and West Texas Intermediate (WTI) jumped 1.03 percent to $49.95 by 12:20 GMT.

The Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut production by roughly 1.2 Mb/d to 32.5, which equates to a 4.5-4.6 percent cut per member country. We believe the outcome is consistent with our view of what OPEC production levels were expected to be in 2017 irrespective of the deal reached yesterday, reported Barclays in its research note.

In other words, the meeting is highly unlikely to substantially affect the oil market balance.  Compared with our assessment of OPEC supply last month, we have adjusted our first-quarter of 2017 production estimate lower by 350 kb/d, which will result in a slightly steeper draw than our balances were forecasting, they added.

Moreover, the Canada GDP increased 3.5 percent in the third-quarter of 2016, as compared to the revised -1.3 percent decrease seen in the second-quarter (previous was -1.6 percent). This comes in alongside market expectations for +3.4 percent increases.

Lastly, Canadian stocks are set to open a stronger session on Thursday, as rallying oil prices could drive gains in the energy sector.

The S&P/TSX Composite Index rose 0.55 percent at the close of the trading session to 15,082.85 on Wednesday. While at 12:00 GMT, the FxWirePro's Hourly Canadian Dollar Strength Index stood neutral at +40.44 (higher than +75 represents bullish trend).