November 14, 2016 / 10:27 PM / 10 months ago

CANADA FX DEBT-C$ hits new 8-month low, Canada's yields surge

(Adds analyst quote, details on CFTC data; updates prices)
    * Canadian dollar ends at C$1.3551, or 73.80 U.S. cents
    * Loonie touches its weakest since Feb. 25 at C$1.3589
    * Bond prices lower across a steeper yield curve
    * 10-year yield touches an 11-month high at 1.591 percent

    By Fergal Smith
    TORONTO, Nov 14 (Reuters) - The Canadian dollar hit a new
eight-month low against its firmer U.S. counterpart on Monday
before paring some losses, and Canada's bond yields surged as
investors bet that U.S. President-elect Donald Trump will pursue
policies that raise inflation.
    The 10-year yield touched its highest in 11 months at 1.591
percent. Just one and a half months ago it hit a record low at
0.904 percent.
    The themes that have emerged since the U.S. presidential
election continue to drive the market, said Amo Sahota, director
at Klarity FX. 
    "You've got ever increasing uncertainty over the trade
relationship (with the U.S.), so that's weighing on the loonie.
You've got (U.S.) rates not just normalizing but actually likely
to press up higher in a spending environment that Trump is
likely to lead and inflationary pressures building up," Sahota
added.
    The U.S. dollar posted an 11-month peak against a
basket of major currencies as the risk of faster inflation and
wider budget deficits sent U.S. Treasury and other benchmark
global bond yields shooting higher.    
    The Canadian dollar ended at C$1.3551 to the
greenback, or 73.80 U.S. cents, slightly weaker than Friday's
close of C$1.3545, or 73.83 U.S. cents, according to Reuters
data.
    The currency's strongest level of the session was C$1.3495,
while it touched its weakest since Feb. 25 at C$1.3589.
    Speculators raised bearish bets on the Canadian dollar to
the most since March, Commodity Futures Trading Commission data
showed. Net short Canadian dollar positions rose to 21,312
contracts in the week ended Nov. 8 from 15,960 in the prior
week.
    U.S. crude oil recovered from a three-month low on
renewed hopes of a cut in production by major oil producers, but
still settled 9 cents lower at $43.32 a barrel. 
    Oil is one of Canada's major exports.
    Canadian government bond prices were lower across a steeper
yield curve, with the two-year down 8 Canadian cents
to yield 0.67 percent and the benchmark 10-year 
falling 105 Canadian cents to yield 1.551 percent.
    The 2-year yield fell 5.9 basis points further below its
U.S. equivalent to a spread of -33.8 basis points, its largest
gap since March, as U.S. Treasuries underperformed.

 (Reporting by Fergal Smith; Editing by Sandra Maler)

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