950803

Canada bonds close

sharply up

TORONTO: Canadian bonds closed sharply higher, outperforming US treasuries in a rally that began after Japan announced it was taking steps to halt its rising yen, dealers said on Wednesday.

Analysts said the Canadian market sentiment has become positive and more gains are likely over the near term, although many players will be watching for Friday's unemployment data in both Canada and the US before extending their long positions.

Canada's 9.0 percent of 2025 was up C$0.65 at 102.40 to yield 8.770 percent.

In comparision, the US 30-year closed at 6.86 percent for a spread of 191 at the close Tuesday.

"Spreads narrowed across the curve, especially at the short end," said Brian Garvey, economist with I.D.E.A.

He added that narrowing spreads, coupled with a rallying Canadian dollar and strong bonds created a perfect environment for today's auction of C$2.1 billion 8.75 percent bonds due December 1, 2005.

"It was an amazing auction," Garvey said. The bonds sold for an average yield of 8.351 percent at a price of 102.698.

The high yield on the 10-year bonds was 8.355 percent, while the low was 8.349 percent. Non-competitive bids, an indicator of retail demand, came at C$75 million.

Some traders had speculated that today's rally would provide an opportunity for the Bank of Canada to drop interest rates, but the bank intervened with a round of reverse repurchase agreements at 6.50 percent, reconfirming its target bottom for overnight money. Analysts said a set of strong economic data from the US was disregarded by the markets today after the news from Japan, but that Friday's unemployment data could have a greater impact.

Analysts also said concerns over political uncertainty ahead of an indepedence referendum in Quebec, as well as expected volatility in the Canadian dollar, could cast a shadow over Canada's bond markets.

They also said market players will be watching dealings in Asia overnight for signs of increased Japanese demand for North American bonds.

In other Canadian prices, the 9.0 percent of 2004 was up C$0.68 at 104.18 to yield 8.343 percent against the US 10-year at 6.44 percent for a spread of 190 basis points.-Reuter