By David George-Cosh
TORONTO--Canadian government bonds ended lower Wednesday, but retraced
some of their losses after the U.S. Federal Reserve provided the
strongest signs yet it would introduce more stimulus if the U.S.
economy continued to weaken.
The U.S. central bank held off from introducing any new measures to
bolster the U.S. economy Wednesday.
Yields for Canada's two-year bond were at 1.104% late Wednesday, from
1.079% late Tuesday. The 10-year bond was yielding 1.726%, from
1.681%, according to electronic bond trading platform CanDeal.
Yields for the 30-year bond were at 2.301% Wednesday, from 2.271% late Tuesday.
Bond yields move inversely to bond prices.
Canadian bonds underperformed U.S. Treasurys for much of Wednesday's
trading session as investors grew jittery ahead of the Fed's
policy-making statement, but closed most of the performance gap by
late afternoon.
Canadian bond prices eased off session lows following the statement
but remained wobbly, with some maturities shifting lower again in
afternoon trading before mounting a partial recovery.
Bond yields in Canada remained higher across the curve from Tuesday's
levels, suggesting there was not a high level worry among investors or
a significant flight to safety.
"The fact that the rates in Canada are up [means] that there's not
much of a panic in the market right now," said Mathieu D'Anjou, senior
economist at Desjardins Securities in Montreal.
Thursday's key market-moving event will likely be the European Central
Bank's policy meeting. The ECB is expected to take some action to help
stimulate the euro-zone's flagging economy while insuring that bond
yields, notably in Spain and Italy, ease off from record highs.
Mr. D'Anjou expects Europe's central bank will keep the door open to
buy bonds from euro-zone nations "if necessary," but hold off on
cutting its key policy rate.
"They have to signal that they're ready to act. They have to do more
to stabilize the bond market, especially in Spain," he said.
There are no Canadian data scheduled for Thursday, leaving bond
markets to move on the ECB's decision as well as U.S. jobless claims
data.
Positioning ahead of Friday's non-farm payrolls report may also
influence fixed-income markets in the day's afternoon session.
Coupon Matures Price Direction Yield (Wed vs Tue)
2.25s 2014 102.256 dn 0.051 1.104% vs 1.079%
1.50s 2017 100.812 dn 0.183 1.316% vs 1.276%
2.75s 2022 109.204 dn 0.435 1.726% vs 1.681%
4.00s 2041 135.638 dn 0.785 2.301% vs 2.271%
Twos-10s yield spread, in basis points: 62.5 vs 60.5
10-Year yield spread vs U.S., in basis points: +20.2 vs +22.7
Write to David George-Cosh at david.george-cosh@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
August 01, 2012 16:25 ET (20:25 GMT)
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