Canadian bonds slide as crude oil hits 7-month high

The Canadian bonds slid on Monday, following a rally in the crude oil prices. The yield on the benchmark 10-year Treasury note which moves inversely to its price rose 1-1/2 basis points to 1.305 percent and the yield on the short-term 2-year bonds also jumped 1 basis point to 0.601 percent by 12:40 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. Today, crude oil prices jumped more than 1 percent, supported by softer dollar after last week's well-below-forecast US jobs report. The International benchmark Brent futures rose 1.81 percent to $50.55 and West Texas Intermediate (WTI) jumped 2.20 percent to $49.69 by 13:10 GMT.

Canada’s exports grew 1.5 percent to $41.8 billion in April. For the April month, the nation recorded trade deficit of $2.9 billion, narrowed from March’s deficit of $3.2 billion. Prices of exports grew 1.1 percent, whereas in terms of volume, exports rose 0.5 percent. Meanwhile, imports grew 0.9 percent to $44.7 billion, whereas in terms of volume and prices, it rose 0.8 percent and 0.1 percent respectively.

The Bank of Canada Governor Poloz said that US data have been 'pretty good' recently, with the weak May payrolls just a 'single data point'. He further added that the Canada-US economic divergence due to the oil shock remains. Can't say how much Canada's economy will rebound in Q3 after the fires.

In addition, Canadian stocks pointed to a higher opening for Canadian stocks on Monday as brent crude oil prices rose, lifted by a plunge in the dollar that could spur demand just as attacks on Nigerian oil infrastructure tighten supplies. Meanwhile, June futures on the S&P/TSX index were up 0.33 percent at 11:30 GMT.