CANADA FX DEBT-C$ slips ahead of data; bond yields tumble
* Canadian dollar at C$1.0875 or 92.95 U.S. cents * 10-year yield at lowest since last June (Adds details, quotes, updates prices) By Leah Schnurr TORONTO, May 28 (Reuters) - The Canadian dollar weakened modestly against the greenback on Wednesday but stayed stuck in its recent trading range as a lack of economic data until later in the week left it without a decisive catalyst. Canadian government bond yields tumbled alongside a drop in their U.S. counterparts, sending the yield on the benchmark 10-year to its lowest level in nearly a year. Investors were looking ahead to Thursday's domestic current account report and Friday's gross domestic product reading, both for the first quarter. South of the border, GDP will be released on Thursday. While the loonie has drifted higher so far in May, it has stayed within a slim range as modestly improving economic data has been balanced against the Bank of Canada's neutral policy stance. "That's the key piece right now for the Canadian dollar is just how the central bank manages to almost dance around what we have, which is an improving fundamental backdrop," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. Once the market is clear of this week's data, attention will be turning to the release of the central bank's latest policy statement next week. Following last week's uptick in the inflation rate, investors will be scrutinizing the statement for any move away from the Bank of Canada's dovish tone. "That's the offset, is that we really need a shift in tone from the Bank of Canada before we risk a significant Canadian dollar rally from here," Sutton said. The Canadian dollar ended the North American session at C$1.0875 to the greenback, or 92.95 U.S. cents, slightly weaker than Tuesday's close of C$1.0861, or 92.07 U.S. cents. The yield on the benchmark Canadian government 10-year bond fell to 2.224, its lowest level since June of last year, as U.S. Treasury yields tumbled. U.S. bond prices were supported by more month-end buying from institutional investors and a drop in the German bond market. "From a fundamental perspective, it doesn't really make a whole lot of sense, the yields are way too low for how the macro backdrop is unfolding," said Mazen Issa, senior Canada macro strategist at TD Securities in Toronto. "Some of the rally in the Canadian fixed income market is also partially due to some seasonal effects, we tend to see yields fall in the month of May." Bond prices were higher across the maturity curve, with the 10-year up 69 Canadian cents and the two-year up 3-1/2 Canadian cents to yield 1.037 percent. (Editing by Chris Reese)
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