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Canada long bonds end slightly up, short end lower

TORONTO: Canadian long bonds ended marginally firmer on Thursday, the short end closed a little lower and both ends were unmoved by a speech by Bank of Canada Governor Gordon Thiessen in New York and a debt buyback by the US Treasury.

Bank of Canada Governor Gordon Thiessen spoke in New York on "the conduct of monetary policy when you live next to a large neighbour".

"Mr. Thiessen was saying more of the same -- everybody expects them to tighten along with the Fed," said David Adamo, managing director of fixed-income research at Scotia Capital Markets.

The Bank of Canada is expected to hike short-term interest rates to track moves by the US Federal Reserve.

The Canadian benchmark long bond, due 2027, rose 13 Canadian cents on Thursday to C$129.95 to yield 5.798 percent.

In related news, the US Treasury conducted its first buyback of longer-dated debt in 70 years on Thursday, buying back $1 billion of a total of $30 billion the US government plans to pull out of the market.

The US bond market was up on the buyback but then lost its sheen as North American stock markets surged.

The US 30-year T-bond added 5/32 to yield 6.151 percent by the close. The negative spread between the two long bonds stood at 35.3 basis points from 36.1 at Wednesday's close.

The fortunes of US bond markets have been inversely linked with those of US stocks this week.

Thiessen, who addressed the Canadian Society of New York at 1:05 p.m. (1805 GMT), said that the central bank is worried the economy may be picking up too much speed despite benign inflation data. By some calculations, Canada could be operating at full capacity.

"We've been stuck in a trading range" following a recent sharp move, Adamo said. "People have to digest the upcoming information and see if the moves that we've seen are justified."

Canada's two-year bond lost three Canadian cents to close at C$98.80 on Thursday, for a yield of 5.989 percent.

In money markets, the three-month when-issued T-bill yielded 5.18, from a yield of 5.15 percent at the previous session's close. -Reuters