Canadian government bond prices rallied on Tuesday as the Bank of Canada kept its rates steady at 1%, as expected, amid a backdrop of increased uncertainty in international financial markets and higher risk aversion."While the economy had more momentum than anticipated in the second half of 2011, the pace of growth going forward is expected to be more modest than previously envisaged, largely due to the external environment," the Bank said in a statement. "Prolonged uncertainty about the global economic and financial environment is likely to dampen the rate of growth of business investment, albeit to a still-solid pace."
Bond yields, which move inversely to bond prices, fell across the curve. Canada's two-year bond yields fell to 0.942% Tuesday from 0.957% on Monday while the 10-year bond yielded 1.916%, down from 1.934%.
Bonds were also pressured earlier Tuesday following better-than-expected economic data from China and Germany, Europe's largest economy.