Canadian bonds trade flat ahead of CPI data, weak crude oil prices limit yields growth

The Canadian government bonds traded nearly flat Thursday as investors await the September consumer inflation data, which is scheduled to be released tomorrow. Also, weak crude oil prices limited the growth in bond yields

The yield on the benchmark 10-year bond, which moves inversely to its price, hovered around 1.188 percent, the yield on long-term 30-year note fell 1/2 basis point to 1.837 percent and the yield on short-term 2-year bond remained steady at 0.560 percent by 13:00 GMT.

As widely expected, the Bank of Canada kept its key policy rate on hold at 0.50 percent during its meeting yesterday. Meanwhile, the central bank revised down its economic growth outlook again citing subdued exports outlook and the effect of recent government changes to mortgage markets. The BoC now expects the economy to expand just 1.1 percent this year, as compared with its earlier forecast of 1.3 percent. For the next year, it projects the economy to grow 2 percent, downwardly revised from its previous estimate of 2.2 percent. The central bank kept the 2018 economic growth outlook unchanged at 2.1 percent.

The biggest revision was made to housing, which is now anticipated to weigh on the economy next year and negatively contribute 0.2 percentage points to the GDP growth. Earlier, the BoC expected the sector contributing 0.1 percentage points to the growth in 2017. According to the central bank, the new measures to ease the housing markets would negatively contributed 0.3 percentage points to the GDP by the end of 2018 as resale activity decelerates and construction shifts to smaller units.

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 dipped as investors cashed in profit after relishing long rally. The International benchmark Brent futures fell 1.90 percent to $51.69 and West Texas Intermediate (WTI) dipped 1.43 percent to $50.86 by 13:00 GMT.

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

The S&P/TSX Composite Index rose 0.60 percent at the close of the trading session to 14,840.49 on Wednesday.