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Canada bonds end higher in lethargic trading

TORONTO: Canadian government bonds ended higher in lethargic trading on Friday as a weaker-than-expected retail sales report in the United States provided fixed-income assets with some modest allure.

US retail sales rose a less-than-expected 0.3 percent in January, although December sales were revised up to 1.7 percent from the previously reported 1.2 percent.

"The retail sales certainly took the market by surprise, although participants want to explain it away based on the upward revision and that's why we're not seeing a really aggressive rally," said Rob Palombi, senior fixed-income economist at Standard & Poor's MMS.

The Canadian benchmark long bond, due 2027, gained 68 Canadian cents to C$124.49 to yield 6.138 percent.

The US 30-year T-bond gained 14/32 to yield 6.291 percent. The negative spread between the two long bonds was at 15.3 basis points, from 13.4 at the previous day's close.

Bond market players were also said to be listless after convulsive trading earlier in the week.

"It's one of those situations where traders are exhausted from the volatility we saw earlier in the week, and general air of confusion about where bonds should be going," Palombi said.

"The Treasury is providing no real clarification on their intention as far as buybacks go the full intent of what they intend to do and there's some belief that the Fed's timetable might be affected by the buyback proposal," Palombi added.

Market players are also looking forward to Humphrey Hawkins congressional testimony from US Federal Reserve Chairman Alan Greenspan on February 17 for suggestions about monetary policy direction in the US, analysts said.

US producer price index and consumer price index data later in the week will also provide significant new information for North American bond markets, analysts said.

Canada's two-year bond was up 5 Canadian cents at C$98.44, for a yield of 6.174 percent.

The three-month when-issued T-bill was at a yield of 5.09 percent, down from the previous day's close at 5.10 percent.-Reuters