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Canadian bonds extend sell off in bear market

TORONTO: Canadian government bonds closed weaker on Wednesday as market pessimists continued to drive prices lower in the face of a stronger Canadian dollar and surging international economies.

"Bonds are just getting killed here," said Hank Cunningham, director of fixed income at First Marathon Securities Ltd. World economies are still growing, led by the torrid pace set by the United States, pushing investors into other markets.

"It's a bear market," Cunningham said.

Canada's benchmark 30-year bond due June 1, 2027, fell C$1.22 to C$119.08 on Wednesday to yield 6.499 percent.

In contrast, the US long bond eased 1-3/32 to yield 6.623 percent. The negative spread between the two totalled 12.4 basis points at the close.

The strength of the Canadian currency on Wednesday also lured investors, following its recent gains, Cunningham said.

It closed at C$1.4487 or 69.03 Canadian cents on Wednesday from its open of C$1.4524 or 68.85 Canadian cents.

Cunningham said that the Canadian bond market was so oversold that he predicted a bounce-back rally in the next three months.

Canadian debt markets were also sold off on Tuesday, playing catch-up with losses in the US on Monday when Canadian markets were closed for a holiday. But Tuesday's equity-sparked recovery in US Treasuries moderated Canada's losses.

Friday's release of the US employment report will be closely scrutinised by a market hungry for clues as to the extent of rate increases necessary for the US Federal Reserve to cool off its economy.

US nonfarm payrolls are forecast on average by analysts at 224,000 jobs in December, down from 234,000 in November. The jobless rate is expected to stay at 4.1 percent.

The two-year bond due December 1, 2001, dipped 15 Canadian cents to C$98.43, with the yield rising to 6.135 percent.

Canada's three-month when-issued treasury bills yielded 5.09 percent at the close.-Reuters