The Canadian government bonds plunged on Monday, following firm crude oil prices and also supported by strong economic data. The yield on the benchmark 10-year bonds, which moves inversely to its price, moved higher 3.68 pct to 1.494 pct and the yield on the 2-year bonds climbed 1.62 pct to 0.689 pct by 1315 GMT.
On Friday, the Canada’s March Consumer Price Index (CPI) rose 1.3 pct y/y, against market expectation of 1.2 pct y/y, from 1.4 pct y/y in February. On monthly basis, it rose 0.6 pct, against market expectation of 0.5 pct. Core CPI rose 2.1% y/y, higher than the market consensus 1.7 pct, prior core CPI 1.9 pct. On the other hand, investors did not react to the weak February retail sales figure, which rose 0.4 pct m/m, against market expectation of 0.8 pct m/m, from 2.0 pct in January.
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 jumped to 5-month high as Energy Information Administration's (EIA) showed that crude stock rose lower than the market expectation last week. The crude inventories rose 2.1 million barrels, from prior build of +6.6 million barrels for the week ending 15 April. This came alongside a decreases seen in gasoline inventories of -0.1 million barrel, from prior -4.2 million barrel and distillate inventories of -3.6 million barrel, as compared to a build of +0.5 million barrel seen prior.
The International benchmark for crude oil prices, Brent futures rose 0.20 pct to $45.16, while West Texas Intermediate crude oil jumped 0.34 pct to $43.88 by 1315 GMT.
"We do not think the BoC is about to cut interest rates further; instead we expect it to await further developments on the oil price and see what impact this has on the Canadian economy. We expect the BoC to increase interest rates for the first time in summer 2017." notes Commerzbank in a report.
Moreover, markets will now look forward on Bank of Canada Governor Poloz Speaks on Tuesday (1255 GMT) and February GDP on Friday (1230 GMT). The investors will also look forward to next week’s FOMC meeting on Wednesday, 27th April.
