Wednesday, 20 June 2012

Canada Bonds Nursing Wounds Inflicted by Fed Speculation

The Canadian bond market, along with US Treasurys is still nursing the wounds inflicted by speculation that the Fed will announce some new monetary stimulus when its policy statement is released in less than half an hour. Two-years are yielding 1.077% vs 1.042% late Tues, 10-years at 1.794% from 1.761%. If the Fed disappoints those market players who are salivating over the prospects of more liquidity, that will be like applying a soothing balm to the bond market's injuries, and perhaps put the market back on a stronger footing.

Canadian Bonds Slump in Quiet Trade Ahead of FOMC

Safe-haven Canadian bonds slumped in quiet trading Wednesday, as investors pinned their focus on the potential for a further easing move from the Federal Reserve.

The market increasingly has come to anticipate some fresh stimulus from the Fed, raising the potential that Canada's government debt market could see a sharp rally if the Federal Open Market Committee, the Fed's policy-setting body, doesn't deliver.

Canada's two-year bond yield was at 1.079% Wednesday, from 1.042% Tuesday. The 10-year bond yielded 1.805%, from 1.761%. Bond yields move inversely to bond prices.

The FOMC concludes its two-day meeting with a policy statement at 12:30 p.m. EDT (1630 GMT) and a news conference around 2:15 p.m. EDT (1815 GMT) Wednesday.

Many investors expect the Fed to extend Operation Twist, a program set to expire this month in which the Fed sells shorter-dated U.S. government debt and buys up longer-dated ones to reduce long-term interest rates. But investors are also pondering the possibility that the Fed will adopt an outright, large-scale asset-purchasing program, or quantitative easing, which would add to the Fed's balance sheet. It would be the third such program in the U.S. since the start of the global economic crisis.

The market consensus is that the Fed will announce something Wednesday. Doing nothing other than delivering more dovish talk is considered "the least likely outcome," said Derek Holt, Scotiabank economist.

Wednesday, 13 June 2012

Pressure on Oil Makes Traction Slick for CAD

Scotiabank says comments from Saudi Arabia's oil minister suggest an expectation for loose supply-demand dynamics to continue as a result of diminished demand. "This suggests continued pressure on oil prices that may pose a near term challenge" to any Canadian dollar rally, firm says. The 30-day rolling correlation between CAD and WTI remains near its 12-month high at 0.93, Scotia says. "However, fundamentals are suggestive of longer-term CAD strength, given strong debt and fiscal metrics, and the most hawkish (on a relative basis) central bank among the majors," Scotia adds.

Tuesday, 12 June 2012

Canadian Bonds See Selling as Calm Emerges in Equity Markets

Canadian government bonds are in negative territory Tuesday with U.S. Treasurys as fixed-income assets are dragged lower while signs of stability emerge in equities.
The 10-year bond was yielding 1.795% Wednesday, from 1.762% late Tuesday, according to data provider CanDeal. Yields for Canada's two-year bond were at 1.022%, from 1.006%, while the 30-year bond was yielding 2.369%, from 2.338%.
Bond yields move inversely to bond prices.
Canadian bonds were selling off moderately during Tuesday's session as investors continue to digest the news of the proposed 100 billion euro ($125 billion) bailout for Spanish banks announced over the weekend. U.S. Treasurys were also trading lower ahead with new supply of $32 billion in three-year notes to be sold later on Tuesday.
With no significant data releases scheduled for Tuesday, bond markets remain "reasonably range-bound," RBC Capital Markets said in a research note.
That range-bound trade may continue for much of the week as investors view Greece's upcoming elections on June 17 as the next big major market-moving event.

Canada Housing Trust Reopens 5-Year Bond to Raise C$5 Bln

anada Housing Trust reopened its five-year bond maturing June 2017, aiming to raise 5 billion Canadian dollars (US$4.85 billion), according to people familiar with the matter.
Pricing of the offering is scheduled for Wednesday. The spread talk is for about 43 basis points over the Government of Canada 1.50% March 2017 benchmark. The bond carries a coupon of 2.05%.
Canada Housing Trust is part of Canada Mortgage and Housing Corp. (CMH.YY). It uses proceeds from the issue of Canada mortgage bonds to purchase mortgages packaged into National Housing Act mortgage-backed securities.

Canada Should Be in Trans-Pacific Partnership, Canadian, US Business Leaders Say

Leaders of two influential Canadian and U.S. business groups Tuesday called for Canada to be included in the Trans-Pacific Partnership, saying that the country shouldn't be pressured to give up its supply management practice that protects dairy and poultry farmers in return for entry into the trade group.
Canada is keen to join the TPP as it seeks to expand trade with fast-growing emerging markets, a move which acquired added urgency following the Obama administration's rejection of the Keystone XL pipeline project.
It is "absolutely essential" for Canada to be at the table for negotiations for the TPP, according to U.S. Chamber of Commerce President Thomas Donohue, who cited the long-standing geopolitical and security relationship between the two North American Free Trade Agreement partners.
"Canada should be a part of it and we vigorously support it," Mr. Donohue said in an interview here on the sidelines of an economic conference.
Some officials say the U.S. isn't keen to have Canada at the table in the early round of negotiations, which, according to Mr. Donohue, was "encouraged by people that had delusions that they could move more quickly" on the negotiations without new entrants. The idea was that others would be welcomed once an agreement had been nailed down. He disagrees with this notion, saying that it would be better if Canada, as well as fellow NAFTA member Mexico, were at the table.
The TPP, originally signed in 2005, comprises the U.S., Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. All nine countries have to agree to the inclusion of any new member.
Canada's supply management practice is a potentially sticky issue, but Canadian Chamber of Commerce president Perrin Beatty said all countries have different issues with regards to barriers in their agriculture sectors.
"The whole point of trade negotiations is you don't negotiate in advance," Mr. Beatty said in the joint interview with Mr. Donohue.
Canada's Natural Resources Minister Joe Oliver said separately that the endorsement from the business leaders was "helpful" and "positive."
The business leaders also said they expect TransCanada Corp.'s (TRP, TRP.T) planned Keystone XL pipeline expansion to receive full approval after the U.S. presidential election in November. The project envisions greatly increasing oil exports from Alberta to the U.S.
Mr. Donohue said the rejection of the line earlier this year by U.S. President Barack Obama was a "purely political decision" due to pressure from environmentalists. He said he expects the section of line from Oklahoma to Louisiana to be approved any time now, and for the rest to be given the go-ahead after the presidential election.
"The sooner that it's built, the better it is for the U.S. economy and for U.S. energy security," Mr. Beatty said.
Write to Nirmala Menon at nirmala.menon@dowjones.com
-Karen Johnson in Montreal contributed to this article.

Canada Resources Min: Faster Project Review Won't Exclude Aboriginal Input

Canada's natural resources minister said the federal government's plan to streamline environmental-assessment requirements won't keep aboriginal leaders from having their say on resource projects before they go forward.
Speaking to reporters at an economics conference in Montreal, Joe Oliver said government authorities would be "bringing the aboriginal communities into the process at an earlier stage, so they can be aware of what's happening earlier, and become part of it in a more meaningful way."
In April, Canada's ruling Conservative government said it planned to overhaul Canada's environmental regulatory system, which it said was too complex and was slowing down development of major projects, such as pipelines and mines. The proposed changes include reducing the number of agencies responsible for reviewing projects, limiting regulators to one environmental review per project, and limiting the timeframe for reviews.
The plans were hatched after the U.S. government earlier this year rejected the initial application of TransCanada Corp.'s (TRP) Keystone oil pipeline from Canada amid strong pressure from environmental groups, who are also campaigning against oil pipeline projects such as Enbridge Inc.'s (ENB) Northern Gateway pipeline to British Columbia coast.
The plan has raised some eyebrows in resource-rich Canada, where opposition politicians and environmental groups have said the changes could weaken environmental protections or impinge on aboriginal rights. Aboriginal groups in Canada have the right to be consulted over proposals to develop resources on traditional lands where they have a legal right to harvest, hunt and fish - even if they don't own the land outright.
--Ed Welsch in Calgary contributed to this article.

Canada Environment Min: Faster Project Review Won't Exclude Aboriginal Input

Canada's natural resources minister said the federal government's plan to streamline environmental-assessment requirements won't keep aboriginal leaders from having their say on resource projects before they go forward.
Speaking to reporters at an economics conference in Montreal, Joe Oliver said government authorities would be "bringing the aboriginal communities into the process at an earlier stage, so they can be aware of what's happening earlier, and become part of it in a more meaningful way."
In April, Canada's ruling Conservative government said it planned to overhaul Canada's environmental regulatory system, which it said was too complex and was slowing down development of major projects, such as pipelines and mines. The proposed changes include reducing the number of agencies responsible for reviewing projects, limiting regulators to one environmental review per project, and limiting the timeframe for reviews.
The plans were hatched after the U.S. government earlier this year rejected the initial application of TransCanada Corp.'s (TRP) Keystone oil pipeline from Canada amid strong pressure from environmental groups, who are also campaigning against oil pipeline projects such as Enbridge Inc.'s (ENB) Northern Gateway pipeline to British Columbia coast.
The plan has raised some eyebrows in resource-rich Canada, where opposition politicians and environmental groups have said the changes could weaken environmental protections or impinge on aboriginal rights. Aboriginal groups in Canada have the right to be consulted over proposals to develop resources on traditional lands where they have a legal right to harvest, hunt and fish - even if they don't own the land outright.
--Ed Welsch in Calgary contributed to this article.

Canadian Bonds Retreat as Equity Markets Rally on Positive Sentiment

Canadian bonds pulled back Tuesday, moving broadly lower as North American equity markets rallied during a relatively muted trading session.
Yields for Canada's two-year bond were at 1.024% late Tuesday, from 1.006% late Monday. The 10-year bond was yielding 1.811%, from 1.762%, according to electronic bond trading platform CanDeal.
Yields for the 30-year bond were at 2.382% Tuesday, from 2.338% late Monday.
Bond yields move inversely to bond prices.
After paring losses during the morning session, Canadian bonds retreated, with the longer end of the curve outperforming the rest of the maturity stack, following the sale of three-year U.S. Treasury notes Tuesday afternoon that saw mixed results.
The longer end subsequently receded against the other maturities, resulting in a steeper yield curve than on Monday.
With little economic data scheduled for release this week, investors took cues from external headlines. North American equity markets were supported by comments made by Federal Reserve Bank of Chicago President Charles Evans who called for additional monetary stimulus to be injected into the U.S. economy and led to a sell-off in fixed-income assets.
Europe continued to weigh on market activity as the European Central Bank reiterated that the euro zone needs to create a banking union to help stabilize the region's shaky fiscal outlook.
Canadian 10-year bonds, being highly correlated to U.S. Treasurys, could see yields edge further to 1.7% if confidence in the global economy continues to weaken and their U.S. counterparts move to a yield of 1.5% from 1.663% recently, said Peter Gibson, chief strategist for CIBC World Markets in Toronto.
"You'd have thought that given our better fiscal position that Canadian bond yields would be lower, but you've got a larger, more liquid market and the reserve status of the U.S. so people would tend to go there first," Mr. Gibson said.

Monday, 11 June 2012

Canadian Bonds Up as Markets Scrutinize Spanish Bank Bailout

Canadian bonds are moderately higher Monday as global financial markets take a harder look at the bailout deal for Spanish banks announced over the weekend.
Risk-sensitive assets slumped in North American trading after rallying over night and safe-haven markets, including Government of Canada bonds, advanced as investors scrutinized the EUR100 billion deal in greater detail and reconsidered its significance in resolving the euro zone's crisis.
Yields for Canada's two-year bond were at 1.027% Monday, from 1.040% late Friday. The 10-year bond was yielding 1.783%, from 1.809%, according to electronic trading platform CanDeal.
Yields for the 30-year bond were at 2.352%, from 2.365%.
Bond yields move inversely to bond prices.
"I think it's still what's going on in Europe that is the big driver today because there is not a lot of big news in North America," said Mathieu D'Anjou, senior economist at Desjardins Securities in Montreal.
"The market seems to have been a bit positive...about the bailout for Spanish banks, but I think what we're seeing now is that there is more and more doubt about this bailout," he said.
"We don't know everything about this bailout. The market wants to have more details about how it will be done," Mr. D'Anjou said. "It's an important step that had to be made, but it's just one step in the euro-zone crisis."
There are no significant data releases in Canada until Thursday, when capacity utilization data for the first quarter, the new housing price index for April and the Bank of Canada's financial system review will be released.

Toronto, Vancouver Housing Mkts 15% Overvalued -TD

Canada's two biggest housing markets, Toronto and Vancouver, seem to have diverged in recent months with the pace of sales slowing and prices declining in Vancouver, while Toronto retains a full head of steam. Average price changes can be deceiving and other measures indicate the divergence is less dramatic, it says. "The real parting of the ways seems to be between the market for single-family homes, where limited supply has kept prices firm, and the condo market, where construction booms have kept price increases more modest for both markets," it says. TD sees the divergence diminishing, but believes that, longer term, both markets are likely 15% overvalued.

Sunday, 10 June 2012

Spanish PM Hails EU Bank Aid, Says to Boost Confidence

Spain's prime minister Sunday hailed a 100 billion euro ($125 billion) credit line from the European Union for Spain's banks, saying it will help to shore up confidence in the ailing local economy and wider euro zone.
Mariano Rajoy also stressed that Madrid hadn't caved into pressure from the EU to fix its banks, but instead said he was the one calling for the aid.
The aid agreement came after days of talks between Spanish and European officials that culminated in a conference call among finance ministers Saturday afternoon, in which the framework for the support was agreed.
"The European project, the future of the euro and our banking system all won new credibility yesterday," Mr. Rajoy told reporters at a televised press conference in Madrid "This is a clear message that the euro project is irreversible."
"Europe has been up to the challenge," he said.
Mr. Rajoy said Spain wasn't under pressure to ask for EU help to fix its banks.
"I was the one putting pressure," he said. "I'd like to know why this deal wasn't reached earlier."
European governments were anxious for Spain to agree to a support package for banks that have suffered from a real-estate crash ahead of crucial Greek elections June 17, the outcome of which could send a new wave of turmoil through the region's financial markets.
The talks dragged on as Spain tried to minimize conditions on the loans, and limit the role of the International Monetary Fund, officials said, fearing it would send the wrong message to foreign investors on which the country depends to plug a government budget deficit that may reach over 5% of gross domestic product this year, down from 8.9% of GDP in 2011.
Madrid also sought strenuously to avoid the aid being depicted as a bailout like those provided to Greece, Ireland and Portugal.
Mr. Rajoy told reporters that the EU support plan for Spain was different to previous European rescues, and that loan conditions will be just linked to the country's banking sector overhaul.
A formal loan request by Spain is expected before June 21, when euro-zone finance ministers meet in Luxembourg and after a detailed report is issued by two government-appointed advisors on the banks' capital needs.
Rajoy is set later Sunday to travel to Poland, where he plans to meet that country's prime minister and watch Spain's opening match in the Euro soccer championship.

Speculators Pare Positive CAD Bets by Half

Speculative traders have cut their net long position CAD by 50%, bringing it to just $1.5B, according to CFTC data for the week ending June 5. They added aggressively to their already record short position in AUD, bringing it to $5.0B, notes Scotiabank. Sentiment toward CAD and toward AUD are both moving in the same bearish direction, but CAD longs are having a hard time capitulating, likely due to the relatively hawkish stance struck by the Bank of Canada, Scotia says.

Canadian Bonds End Higher, Outpace U.S. Treasurys In Choppy Trading

Canadian bonds ended higher Friday, paring some of their earlier gains but outperforming U.S. Treasurys in restless, headline-driven trading.
Yields for Canada's two-year bond were at 1.041% Friday, from 1.053% late Thursday. The 10-year bond was yielding 1.809%, from 1.826%, according to electronic trading platform CanDeal.
Yields for the 30-year bond were at 2.367%, from 2.383%.
Bond yields move inversely to bond prices.
"They were trading a little better, but they've given back a little bit," said one Montreal bond trader.
Canadian bonds were able to hold in more effectively than their U.S. counterparts as investors gained confidence in more risk-sensitive assets on expectations that euro zone officials might be able to forge a bailout for Spanish banks over the weekend.
"We lagged on the way up and are obviously outperforming on the way down," the trader said.
There was a an outburst of Canadian economic data after a recent dry spell, with Statistics Canada reporting job growth of 7,700 in April, slightly higher than the consensus forecast of 5,000.
The trade balance for April was deficit of C$367 million, weaker than the expected surplus of C$180 million and the first deficit in six months.
But the data were not far enough from expectations to roil the market significantly.
"In terms of economic data, there was nothing really shocking in one way or another," said David Tulk, chief Canada macro strategist at TD Securities.
Some of the activity on Friday was also attributable to position squaring ahead of the weekend, Mr. Tulk said.
"I feel like we're still in a holding pattern waiting for clarity in Europe ahead of the Greek election on [June 17]," he said.
The market will remain on tenterhooks and will continue to take direction from developments in Europe, the Montreal bond trader said.
"It's a headline-driven market, and that's all. If there's a credible plan that comes out of Europe, then the market will certainly be vulnerable," he said.

Friday, 8 June 2012

Canadian Dollar Ends Flat After Trimming Overnight Losses

The Canadian dollar bounced back from overnight weakness Friday to end virtually flat against the U.S. dollar in nervous trading, with investors staying focused on the sovereign debt crisis in Europe.
Slightly stronger-than-expected domestic employment data for May helped bolster the currency somewhat in volatile environment.
The U.S. dollar is trading at C$1.0283 from C$1.0278 late Thursday.
It had declined in earlier trading, with the U.S. dollar reaching a session high at C$1.0356 as investors shied away from risk-sensitive assets.
Jobs data in Canada came in slightly better than expected, with a gain of 7,700 net jobs in May against a consensus forecast of 5,000 and a gain of 58,200 in April. The unemployment rate remained steady at 7.3%.
"The market itself was probably prepared for a slightly worse number," said Shaun Osborne, chief currency strategist at TD Securities.
The modest strength in Canada's labor market in June was not seen as sufficient to influence expectations that the Bank of Canada is likely to remain sidelined for the rest of the year, if not longer. But it was enough to underpin a firming the loonie, which has been buffeted by strong head winds in earlier sessions as investors shied away from assets considered risk sensitive.
The market's attention honed in on the crisis in Europe, however, relegating domestic data to a secondary role.
"The focus is on [Spain] and the potential for some progress there, maybe a bank bailout of some sort over the weekend," said TD's Osborne. "At the moment, at least, that's helping us out."
But global markets have been fickle in their attitude to risk-sensitive assets, embracing them when the news flow is more positive and spurning them when it isn't.
"Everybody's forgetting that just 24 hours or so ago they were all gloom and doom because [Fed Chairman Ben Bernanke] wasn't strapping himself into the helicopter," Osborne said, referring to the top U.S. central banker's moniker "Helicopter Ben" based on a reference Bernanke himself made to a statement by Milton Friedman about using a "helicopter drop" of money into the economy to fight deflation.
"It's all bipolar...very short-term, headline-driven trading at the moment," Osborne said.
The U.S. dollar's strong rebound against its Canadian counterpart on Thursday suggests any weakness will likely be short lived, he said.
"We did have quite a decent rally yesterday, so I'd be surprised if we got back even close to C$1.0200," Osborne said.
These are the exchange rates at 3:25 p.m. EDT (1925 GMT) and 8:00 a.m. EDT (1200 GMT) Friday, and late Thursday.

Thursday, 7 June 2012

Canadian Dollar Ends Flat, Cedes Early Gains on Bernanke Comments

The Canadian dollar rose to its highest level since May 29 in morning trading Thursday but then ceded its gains to end flat after congressional testimony from Federal Reserve Chairman Ben Bernanke fell short of explicitly signaling a new round of monetary easing.
The U.S. dollar was at C$1.0281 late Thursday and C$1.0276 late Wednesday, according to data provider CQG. It dropped to a low of C$1.0206 before rebounding after Mr. Bernanke's remarks at 10:00 a.m. EDT (1400 GMT).
Appearing before the Joint Economic Committee, Mr. Bernanke suggested that questions about the needs, and effectiveness, of more Fed stimulus for the economy remain very much unresolved.
Some market players had positioned themselves for a more definite signal about the potential for more monetary stimulus in the chairman's remarks, and risk-sensitive assets such as the Canadian dollar sold off afterwards as a result.
"The market's all about immediacy, and I think there was some faint hope one might see something earlier rather than later on that front," said Shane Enright, executive director, capital markets trading at CIBC World Markets.
"I think the reality is that Bernanke is always going to be offering a slightly more balanced view," he said.
Crude oil futures retreated after an initial boost from news of a rate cut in China, a development that also pressured the Canadian dollar, Mr. Enright said.
The C$1.0200 area will provide initial support for the U.S. dollar, and sellers will likely return on a move to the C$1.0300-25 area, he said.
On Friday, Canadian jobs data for May will be released. Economists believe the Canadian economy created 5,000 jobs in May after adding 58,200 in the previous month.
These are the exchange rates at 4:23 p.m. EDT (2023 GMT) and 8:00 a.m. EDT (1200 GMT) Thursday, and late Wednesday.

Canadian Bonds Decline for 4th Day As Sentiment Continues to Lift

Canadian bonds moved lower as an absence of negative news out of Europe and a wave of constructive economic data helped to convince investors to step aside from the safety of fixed income for a fourth-straight session.
Yields for Canada's two-year bond were at 1.069% late Thursday, from 1.054% late Wednesday. The 10-year bond was yielding 1.842%, from 1.803%, according to electronic trading platform CanDeal.
Yields for the 30-year bond were at 2.387% Thursday, from 2.350% late Wednesday.
Bond yields move inversely to bond prices.
After moving to record-low yields last week as heightened worries across Europe led to a broad flight to safety, bonds continued to decline, shrugging off a positive read of Canada's Ivey purchasing managers index and U.S. labor data.
Canadian bonds followed their U.S. counterparts with small gains after Federal Reserve Chairman Ben Bernanke provided testimony to Congress that failed to provide signs that further monetary stimulus would be injected into the financial system.
Those gains were short-lived and bonds registered a decline across the board. Issuance of Canadian provincial bonds that yielded more than their government counterparts also contributed to the sell-off, said Andrew Kelvin, senior fixed income strategist at TD Securities in Toronto.
"I would still characterize this bond market as being positioned defensively," Mr. Kelvin said.
He added that traders weren't taking positions ahead of Canadian labor data that will be released Friday morning, noting that the front-end of the curve would have seen more movement if investors were worried about domestic employment figures.
Canada is expected to report a gain of only 5,000 jobs in May.

National Bank Vancouver Mgr From HSBC Leaves

Ronald Walchuk has replaced Peter Evanoff as regional manager in Vancouver, British Columbia, for National Bank of Canada (NA.T), according to people familiar with the situation.
Mr. Walchuk currently oversees the bank's Victoria, B.C., branch and will continue in that role as well as assuming responsibility for National Bank's larger Vancouver region.
A spokeswoman declined to comment. Mr. Evanoff wasn't immediately reachable for comment, and Mr. Walchuk didn't immediately return a call seeking comment.
The departure comes in the wake of last year's purchase by National Bank of HSBC's Canadian retail-brokerage unit. Mr. Evanoff formerly worked for HSBC as the Vancouver chief. His exit follows the recent departure of another onetime HSBC manager Mike Miller, the former national sales manager for Ontario and the Atlantic region, who left in March.

Sunday, 3 June 2012

Tepid Canada Growth To Keep BOC Sidelined For '12 -BMO

BMO Capital Markets says March GDP of 0.1% in Canada doesn't provide a great handoff to 2Q, and it's not holding its breath for a strong pickup in growth given a still-soft U.S. economy and confidence headwinds emanating from Europe. Growth of 1.8% in Q1 as whole is well below the 2.5% projection penciled into the April MPR by the Bank of Canada, suggesting it may have to push back its estimate for the output gap to close in the first half of 2013. "Against this backdrop, the Bank of Canada will likely be on hold for the remainder of the year," BMO says.