Canadian bonds plunge as crude oil prices rebound; employment data in focus

The Canadian government bonds plunged after global crude oil prices rebounded on Tuesday after falling by 10 percent in one week. The yield on the benchmark 10-year bond which moves inversely to its price fell 4 basis points to 1.028 percent and the yield on short-term 2-year note dipped 4-1/2 basis point to 0.540 percent by 13:00 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. The crude oil prices stabilized with some bargain-hunting after dropping below $40 for the first time since April. The International benchmark Brent futures rose 0.93 percent to $42.53 and West Texas Intermediate (WTI) jumped 0.92 percent to $40.43 by 12:30 GMT.

On Friday, the Canada GDP declined 0.6 percent m/m in May (worst month in more than 7 years on Alberta wildfires), consensus wad for a 0.4 percent m/m fall, from up 0.1 percent m/m in April.

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 0.21 percent at the close of the trading session to 14,582.72 on Friday.