Canadian bonds plunge as energy prices gain strength, December CPI in focus

The Canadian bonds continued to plunge on the last trading day of the week as global energy prices gained strength, driven by a weaker U.S. dollar and signs of market tightening after major oil producers agreed to cut output. Also, investors remain keen to focus on the December consumer price inflation data, scheduled for later today.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose nearly 1 basis point to 1.76 percent, the yield on long-term 30-year Treasury also moved 1 basis point higher to 2.38 percent and the yield on short-term 2-year bond barely rose 1/2 basis point to 0.79 percent by 12:20 GMT.

The International benchmark Brent futures jumped 1.46 percent to USD54.94 and West Texas Intermediate (WTI) also rose 1.01 percent to USD51.89 by 12:30 GMT.

Crude stockpiles at Cushing, which is the delivery point for WTI, dropped to 65.7 million barrels in the week ended January 13, according to the EIA. Nationwide crude inventories rose for a third week, climbing to 485.5 million.

Refineries processed 16.5 million barrels a day of crude last week, down 639,000 barrels from the prior week’s record pace of 17.11 million, the report showed. Refineries operated at 90.7 percent of capacity, down 2.9 percentage point from the prior week, the biggest decline in three months.

Further, 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.

Moreover, 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).

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

Meanwhile, the S&P/TSX Composite Index rose 0.08 percent to 15,409.81 at the close of the trading session on Thursday, while at 12:00GMT, the FxWirePro's Hourly CAD Strength Index remained highly bearish at -109.75 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex