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Canada bonds end up after "uneventful" session

TORONTO: Canadian government bonds ended higher on Wednesday after a lackluster session spent struggling back from an earlier spate of weakness.

"I would say it's been rather quiet and uneventful," said one Toronto bond trader.

The Canadian benchmark long bond, due 2027, was up 4 Canadian cents at C$129.66 to yield 5.816 percent.

The US 30-year T-bond lost 10/32 to yield 6.158 percent. The negative spread between the two long bonds was at 34.2 basis points, from 31.7 at the previous session's close.

The US National Association of Purchasing Management's February index, came in at 56.9, higher than the expected 56.6. The prices paid component was at 74.1 in February, up from 72.6 in January.

The market seemed to shrug off the strong report, but began to slip lower as the session progressed.

"The market was stronger than this level first thing this morning, spent most of the day falling to lower levels and only in the last hour or so has managed to creep its way back," the trader said.

Short-covering was the primary spur to the late recovery in most maturities, he added.

Although they lead the way early in the sessions, long bonds failed to participate significantly in the short-covering upturn late in the session.

"We saw a reverse of yesterday's trade, basically the long bond unwound yesterday's gain and the front end unwound yesterday's losses," said Rob Palombi, senior fixed-income economist at Standard & Poor's MMS.

In supply news, the Canada Mortgage and Housing Corporation issued a C$400 million, five-year bond at C$97.657 for a yield of 14 basis points over a comparable Government of Canada bond.

The Government of Canada announce that an auction of C$350 million of inflation-indexed real return bonds netted a median yield of 3.950 percent, with a an allotment ratio of 0.30909.

The next major landmark for North American bond markets will be the release of US nonfarm payrolls on Friday morning, and the currency will likely drift lower ahead of that report, market watchers said.

"We'll probably eventually fade lower into Friday, that's my call," the trader said.

The Canadian consumer price index report for February, scheduled for March 15, should also be pivotal for the Canadian bond market, Palombi said.

The negative yield spread between the two-year and 30-year bonds narrowed on Wednesday, moving to negative 14.4 basis points from 16.8 at Monday's close.

Canada's two-year bond was up 3 Canadian cents at C$98.82, for a yield of 5.972 percent.

In money markets, the three-month when-issued T-bill was at a yield of 5.12 percent, down from the previous session's close at 5.14 percent.

In ratings news, Standard & Poor's announced that it affirmed its AAA rating for the Government of Canada's local, long-term debt and AA rating for foreign currency, long-term debt in the wake of the fiscal year 2000-01 budget released on Monday.

The outlook remains stable, S&P said in a news release. -Reuters