CANADA FX DEBT-C$, bonds burst higher after Fed decision

Wed Mar 18, 2009 2:56pm EDT
 
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TORONTO, March 18 (Reuters) - The Canadian dollar jumped more than 1 U.S. cent on Wednesday, while bonds surged, after the U.S. Federal Reserve said that it would buy longer-term Treasuries.

At 2:40 p.m. (1840 GMT), the Canadian dollar was sharply higher at C$1.2560 to the U.S. dollar, or 79.62 U.S. cents, from C$1.2688 to the U.S. dollar, or 78.81 U.S. cents, at Tuesday's close. At one point, the currency rallied as high as C$1.2500 to the U.S. dollar, or 80 U.S. cents.

Doug Porter, deputy chief economist at BMO Capital Markets, said the market has "seen no shades of grey" following the Fed's decision to buy up to $300 billion worth of longer-term U.S. government debt and expand purchases of mortgage-related debt to help ease credit market conditions. [ID:nN18343369]

The U.S. central bank also said it had decided to hold its target for overnight interest rates in a zero to 0.25 percent range.

Canadian bonds instantly reversed losses as U.S. Treasuries rallied sharply.

"We've seen an absolutely massive rally in bonds, especially at the long end and that's completely spilled over into Canada. We've also seen the U.S. currency taking it on the chops, mostly against the euro but it also sagged against the Canadian dollar," said Porter.

The two-year bond was up 9 Canadian cents at C$103 to yield 0.968 percent. The 10-year bond jumped C$1.75 to C$108.85 to yield 2.748 percent. The 30-year bond gained C$1.25 to C$125.00 to yield 3.584 percent. (Reporting by Ka Yan Ng; Editing by Jeffrey Hodgson)