Canadian bonds sag as economic growth recovers in June

The Canadian government bonds traded modestly lower Wednesday after data showed that the country’s gross domestic product (GDP) growth recovered in June. Although the annualized reading for the second quarter registered a larger than expected contraction, which limited the growth in bond yields.

The yield on the benchmark 10-year bond rose more than 1 basis point to 1.034 percent, the yield on long-term 30-year note also bounced nearly 1 basis point to 1.637 percent and the yield on short-term 2-year bond remained steady at 0.587 percent by 13:00 GMT.

The Statistics Canada in its report showed that the gross domestic product (GDP) increased 0.6 percent in June from a month earlier, as compared to forecasts for a 0.4 percent expansion in line with forecasts, from down 0.6 percent in May.

On a quarterly basis, Canada’s economy contracted at an annualized rate of 1.6 percent in the second quarter, worse than expectations for a decline of 1.5 percent. That followed growth of 2.5 percent in the preceding quarter that was revised upwards from an initial figure of 2.4 percent.

Moreover, 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 declined more than 1 percent as the US dollar rallied and oversupply worries grew amid forecasts for higher US crude inventories.

Iran said it would only cooperate in talks to freeze output if other exporters recognized its right to full regain market share. Also, data showed that Iraq is producing 3.205 million barrel per day in August compared to 3.202 million barrel per day in July. The International benchmark Brent futures fell 1.19 percent to $48.16 and West Texas Intermediate (WTI) dipped 1.04 percent to $45.87 by 13:00 GMT.

Lastly, Canadian stocks may struggle to continue its winning track Wednesday morning amid sluggish commodities.

The S&P/TSX Composite Index closed 0.02 percent higher at the close of the trading session to 14,684.85 on Tuesday.