Canadian bonds gain following weak crude oil prices, stocks to open lower

14 September 2016, 09:00
Eko Rediantoro

The Canadian government bonds gained Tuesday as crude oil prices declined more than 1 percent after IEA in its monthly report highlighted sharp slowdown in global crude demand growth.

The yield on the benchmark 10-year bond, which moves inversely to its price, fell 1 basis point to 1.145 percent, the yield on long-term 30-year note also dipped nearly 1 basis point to 1.780 percent and the yield on short-term 2-year bond slid 1/2 basis point to 0.580 percent by 12:00 GMT.

The Canadian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Canadas target. According to Reuters, Crude oil dipped following a series of gloomy predictions on demand growth that pointed to the global overhang of unused inventories persisting for much longer than anticipated. The International benchmark Brent futures fell 1.90 percent to $47.40 and West Texas Intermediate (WTI) dipped 1.99 percent to $45.37 by 12:00 GMT.

The International Energy Agency in its monthly report lowered 2016 global oil demand growth forecast to 1.3 billion barrel per day, from previous 1.4 billion barrel per day, 2017 forecast remained unchanged at 12 million barrel per day. Global refinery runs in 2016 set to grow at lowest rate in a decade and will delay market rebalancing and crude oil to outpace demand at least through the first half of next year as demand growth slows.

Moreover, in its report mentioned that OECD total inventories built by 32.5 Mb/d in July to a fresh record of 3.111 Mb/d. As refinery activities reached a summer peak, crude oil inventories refused to decline until an exceptional storm-related draw hit the US in late August.

Lastly, Canadian stocks may struggle to continue its winning track Tuesday morning amid sluggish commodities.

The S&P/TSX Composite Index rose 0.39 percent at the close of the trading session to 14,597.06 on Monday

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