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Canadian bonds

rally on

rate cut

TORONTO: Canadian bonds rallied to close higher after the Bank of Canada cut short-term rates, with some British interest expected overnight, an analyst said.

"It's primarily come from the Bank of Canada move," said IDEA economist Brian Garvey. The Bank intervened on the money market with special purchase and resale agreements at 6.50 percent, lowering its target range for the key overnight money rate by 25 basis points to 6.0-6.50 percent.

Canada's 9.0 percent due 2025 surged by C$0.95 to 106.60 to yield 8.391 percent against the US 30-year at 6.71 percent, for a spread of 168 basis points.

The rate cut, the seventh this summer, had been expected since last week in bid to spur Canada's sluggish economy after very weak second quarter, economists said.

Garvey said Canada's central bank may ease overnight rates yet again late this week, since the Canadain dollar strengthened after the cut to C$1.3382 (US$.0.747) from Friday's close of C$1.3440 (US$.744).

A trader who declined to be named disagreed, nothing today's bond market was very thin and easily swayed.

Garvey said UK investors, who were on holiday Monday, may sell bonds to take profits in overnight trading.

This week dealers will keep an eye on economic data releases from both the United States and Canada.

In the US Friday's August jobs data is likely to gather most of the attention. On Tuesday, July's new home sales and August,s consumer confidence report will be released.

In Canada, July's Industrial Product Price Index report and Raw Materials Price Index numbers will be issued Tuesday.

Among other prices, Canada's 9.0 percent of 2004 was up C$0.62 at 106.60 to yield 7.974 percent against the US 10-year at 6.34 percent for a spread of 163 basis points.

At the front end, Canada's three-month cash T-bill traded at 6.29 percent against the US three-month at 5.47 percent.-Reuter