Canada 2-year bond sale helped by Europe fears

Wed Jan 11, 2012 2:33pm EST
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By Jon Cook

TORONTO (Reuters) - Canada's sale of two-year government bonds generated strong demand on Wednesday, helped by fears about the global economic outlook, even as the average yield climbed from the multi-year low seen at December's auction.

The C$3.5 billion ($3.4 billion) auction of bonds due 2014, produced an average yield of 0.973 percent, up from 0.937 percent at the last two-year bond auction in December. December's average yield was the lowest for a two-year auction in at least two years.

There were more than C$9 billion in bids from primary dealers, resulting in a bid-to-cover ratio of 2.59, up from 2.53 percent in December and the highest since April.

The ratio is a barometer of investor demand, and a reading above 2 typically indicates healthy appetite.

"There's a lot of uncertainty about where the economy is going over the next couple months globally," said Andrew Kelvin, senior fixed-income strategist at TD Securities.

Investor fears about Europe's financial crisis were heightened on Wednesday after ratings agency Fitch urged more action by European policymakers to prevent a "cataclysmic" collapse of the euro, which sent global equities markets falling. <MKTS/GLOB>

German economic data also showed the European Union's largest economy shrank 0.25 percent in the last three months of 2011.

Persistent concerns about the future of the euro zone fueled bids for Canadian bonds, U.S. Treasuries and other perceived low-risk investments.   Continued...