Canadian bonds slump on rallying crude oil prices, focus on BOC policy decision

The Canadian government bonds slumped on Tuesday following rally in the crude oil prices. Also, investors await the Bank of Canada (BoC) monetary policy decision, which is scheduled to be held on July 13.

The yield on the benchmark 10-year bond which moves inversely to its price rose more than 3 basis points to 1.014 percent and the yield on the long-term 30-year bonds jumped more than 5 basis points to 1.612 percent by 13:00 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 futures bounced back from two-month lows, helped by a weaker dollar, but an oil inventory glut and a drop in bullish bets by investors weighed on prices. The International benchmark Brent futures rose 2.27 percent to $47.30 and West Texas Intermediate (WTI) jumped 1.90 percent to $45.61 by 09:30 GMT.

Investors will remain keen to focus on the tomorrows monetary policy decision due at 14:00 GMT, the market will primarily focus on the comments made by the Governor for any signals about future policy.

According to recent Reuters poll, the central bank will keep interest rates unchanged for at least another year given the still-depressed price of oil, a major export, and risks to global economic growth from Britain's shock vote to leave the European Union.

Over 40 economists polled by Reuters unanimously forecast the BoC would hold rates at 0.5 percent at its July 13 meeting. Rates are forecast to rise in late 2017 and reach 1.00 percent by mid-2018, according to the poll.

Lastly, Canadian stocks are set for another strong session Tuesday, as rebounding oil prices could drive gains in the energy sector. The S&P/TSX Composite Index was up more than 100 points on Monday, approaching yearly highs on renewed optimism for economic growth in the U.S. and Canada.