Canadian bonds fall as BoC remains optimistic over 2016 growth, maintains stable policy rate

The Canadian bonds fell Thursday after the Bank of Canada remained optimistic over the country’s gross domestic product in 2016 at 2017’s first monetary policy meeting held Wednesday. The central bank also maintained a stable policy rate at 0.50 percent.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 1 basis point to 1.72 percent, the yield on long-term 30-year Treasury also moved 1 basis point higher to 2.33 percent and the yield on short-term 2-year bond barely rose 1/2 basis point to 0.77 percent by 12:40 GMT.

The Bank of Canada in its first monetary policy of 2016 maintained its benchmark interest rate at 0.50 percent, as widely expected. Also, the central bank upgraded its economic growth forecast for 2016, 2017 and 2018. Canadian GDP is now estimated to have expanded by 1.3 percent in 2016 (previously: 1.1 percent), and is expected to accelerate to 2.1 percent this year (was 2.0 percent).

The BoC in its monetary policy statement mentioned that the uncertainty about the global outlook is undiminished, particularly with respect to policies in the United States. The Bank has made initial assumptions about prospective tax policies only, resulting in a modest upward revision to its U.S. growth outlook.

It also added that the global economy is strengthening largely as expected and prices of some commodities, including oil, have risen. The rapid back-up in global bond yields, partly reflecting market anticipation of US fiscal expansion, has pulled up Canadian yields relative to the October Monetary Policy Report (MPR).

Lastly, markets will now look forward to the release of consumer price inflation and retail sales data, scheduled for Friday, for further direction in the debt market.

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

Meanwhile, the S&P/TSX Composite Index fell 0.28 percent to 15,397.85 at the close of the trading session on Wednesday, while at 12:00GMT, the FxWirePro's Hourly CAD Strength Index remained slightly bearish at -99.96 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex