20000109Canadian bonds down as oversold market bounces back

TORONTO: Canadian government bonds ended narrowly mixed on Friday as the market bounced back from earlier selling pressures and overcame the effects of bearish employment data in Canada and the U.S.

"It's a market that really got oversold," said one Toronto bond salesman."So now what we're seeing here is a little of that oversold situation being taken out of the market we're catching a short-covering bounce."

Canada's benchmark 30-year bond due June 1, 2027, lost 3 Canadian cents on Friday to yield 6.418 percent.

The U.S.long bond gained 3/32 to yield 6.547 percent. The negative spread between the two totalled 12.9 basis points.

Canadian and U.S. bond prices sagged in early trading after stronger-than-expected jobs reports in both countries early in the session.

Statistics Canada reported at on Friday that employment in Canada rose by 42,300 in December, significantly exceeding the 29,600 expected by economists. The unemployment rate remained steady at 6.9%.

In the U.S., nonfarm payrolls rose by 315,000, exceeding the 222,000 increase recorded in November.

But the reports failed to match some market players worst fears, and the market rebounded and started edging higher, market watchers said.

The market was already "very defensively priced" heading into jobs reports, said Frank Hracs, head of fixed-income research at T.D. Securities Inc.

"While the employment report was bearish, it was not spectacularly bearish," he said.

"Basically we're closing flat to last week's levels. Technically, this might look quite positive heading into next week," Hracs added.

After acute underperformance on Tuesday, the Canadian market traced the U.S. market closely for the balance of the week, he said.It underperformed the U.S. slightly on Friday.

Trading volumes were thin on Friday, the bond salesman said. "There has been some activity, but we're still fairly thin. It has been all week," he said. "I would suggest that by next week we'll be ready to rock and roll."

The two-year bond due December 1, 2001, lost 1 Canadian cent to C$98.55, with the yield rising to 6.076 percent.

Canada's three-month when-issued treasury bills yielded 5.08 percent.

In supply news, a major Canadian financial institution is poised to launch an asset-backed security based on personal lines of credit next week, the bond salesman said.

A road show will likely be held in Toronto on Wednesday, he said, adding: "I would say by the latter part of next week they'll be ready to float a deal."-Reuters