Canadian bonds slump following global debt market, 10-year yields hit highest since May

The Canadian government bonds slumped Thursday following weakness in the global debt market. Also, 10-year bond yields hit highest since May this year.

The yield on the benchmark 10-year bond, which moves inversely to its price, rose 2 basis points to 1.389 percent, the yield on long-term 30-year note jumped 3-1/2 basis points to 2.049 percent and the yield on short-term 2-year bond climbed ½ basis point to 0.598 percent by 13:00 GMT.

The U.S. bond prices dropped on expectations that U.S. President-elect Donald Trump's policies, such as fiscal expansion and protectionism on international trade, will stoke inflation, sending 10-year Treasury yield to the highest in 2016 of 2.09 percent.

Moreover, investors again revised the outlook for the U.S. interest rates after Donald Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 82 percent.

Also, market expects that the Federal Reserve will not witness any difficulty from the victory of Republican candidate Donald Trump in hiking interest rate in December, supported by improving economic conditions.

Trump has indicated he would increase fiscal spending and adopt more protectionist trade policies that could support growth and inflation, analysts said. Rising inflation tends to erode the value of bonds, pushing yields higher, Reuters reported.

In addition, 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 turned lower after the International Energy Agency warned that the market risks running another surplus in 2017 without an output cut from OPEC. The International benchmark Brent futures fell 0.40 percent to $46.16 and West Texas Intermediate (WTI) also dipped 0.68 percent to $44.96 by 13:00 GMT.

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

Meanwhile, the FxWirePro Canadian Dollar Spot Index is neutral at 50, above the 0-point threshold benchmark (75 <Dollar Index <100 is considered to be slightly bullish), the S&P/TSX Composite Index rose 0.70 percent at the close of the trading session to 14,759.91 on Wednesday.