Canadian bonds gain as wholesale trade falls unexpectedly in September

The Canadian government bonds gained Tuesday as recent data showed that wholesale sales fell unexpectedly in September on weak demand.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 2 basis points to 1.54 percent and the yield on short-term 2-year bond slid 1 basis point to 0.66 percent by 12:50 GMT.

Wholesale sales in Canada posted a surprise decline during the month of September, following weakness in demand for machine tools and equipment that disappointed sellers at the start of the fourth quarter.

Canadian wholesale sales declined 1.2 percent in September compared with expectations of a 0.3 percent increase for the month and followed a 0.8 percent gain the previous month, data released by Statistics Canada showed Monday. The annual increase slowed to 2.8 percent while, in volume terms, there was a 2.6 percent annual increase after a 1.5 percent monthly decline.

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 recovered on rising consensus that the OPEC will find a way to reduce production. The International benchmark Brent futures rose 1.33 percent to $49.55 and West Texas Intermediate (WTI) jumped 1.08 percent to $48.76.

Lastly, investors remain keen to focus on the upcoming September retail sales data.

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

The S&P/TSX Composite Index rose 1.18 percent at the close of the trading session to 15,039.87 on Monday.

While at 12:00 GMT, the FxWirePro's Hourly Canadian Dollar Strength Index remained slightly bullish at 104.67 (higher than 75 represents purely bullish trend).