Canadian bonds slump as BoC maintains optimism on growth

The Canadian government bonds slumped on Monday after the Bank of Canada remained optimistic on the economic outlook in its monetary policy statement. Also, weak crude oil prices limited the growth in bond yield.

The yield on the benchmark 10-year bond which moves inversely to its price rose nearly 2 basis points to 1.107 percent and the yield on short-term 2-year note bounced 1 basis point to 0.579 percent by 13:10 GMT.

Last week, the central bank announced no change in the overnight rate target of 0.50 percent, in line with market expectations. Moreover, the BOC in its statement mentioned that the risks to the profile for inflation are roughly balanced, although the implications of the Brexit vote are highly uncertain and difficult to forecast.

According to the statement, real GDP grew by 2.4 percent in the first quarter of 2016, against market expectations of -1.0 percent contractions, which weighed down by volatile trade flows, uneven consumer spending, and the Alberta wildfires. The statement also justified that economy is expected to grow further in the third quarter of 2016 due to stabilising crude oil prices in the international market.

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 dipped as investors discounted the implications of the attempted coup in Turkey and the trades turned concentrated to bearish fundamentals, while disruptions to crude exports in Libya lent prices some support. The International benchmark Brent futures fell 1.47 percent to $46.90 and West Texas Intermediate (WTI) dipped 1.02 percent to $45.48 by 12:30 GMT.

Lastly, Canadian stocks may struggle to get back on the winning track Monday morning amid sluggish commodities. With few catalysts seen helping Toronto's main index beyond last week's 11-month highs, traders are looking at signs of a lackluster session, RTTnews reported.

The S&P/TSX Composite Index fell 0.2 percent to 14,482.42 on Friday, snapping a five-day rally.