Canadian bonds flat ahead of Bank of Canada policy meeting

The Canadian bonds traded nearly flat on Tuesday, as investors await May monetary policy meeting. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, stood flat at 1.349 percent and the yield on the short-term 2-year Treasury bond hovered at 0.630 percent by 1130 GMT.

The Bank of Canada (BoC) holds its next policy meeting tomorrow. While no change in policy is expected, while the central bank's new growth forecasts will be watched. The central bank is expected to keep policy rate unchanged at 0.50 percent and reiterate its neutral policy bias. The focus at the meeting shall also be on the Monetary Policy Report. The new government under Prime Minister Justin Trudeau has recently announced its new budget which includes substantial government spending and the report will include an analysis of the impact of the fiscal stimulus on the economic outlook.

The Canadian economy has recovered notably from the oil price shock in late 2014, but the recovery has lost some momentum again towards the end of the year. The Bank of Canada (BoC) is attributing the slump in growth to temporary factors and the recovery of the Canadian economy is nonetheless likely to continue this year as oil price stabilises and US economy rebounds.  At 1.4 percent, inflation is currently within the Bank of Canada's target band. Moreover, the risks for the inflation outlook remain balanced. Therefore, there is little need for the BoC to take action over inflation.

Moreover, future course in bond prices are likely to be ruled by the movements in the crude oil market. The International benchmark Brent futures fell 0.33 pct to $48.19 and West Texas Intermediate (WTI) dipped 0.37 pct to $47.90 by 1130 GMT.