CANADA FX DEBT-C$ gets boost from oil, market rebound

Mon Nov 24, 2008 12:58pm EST
 
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 * Currency up as investors return to riskier assets
 * Higher oil prices also help boost Canadian dollar
 * Bond prices hit by Citigroup rescue plan
 (Updates market activity)
 By Frank Pingue
 TORONTO, Nov 24 (Reuters) - The Canadian dollar was on
track for its biggest one-day gain in nearly a month on Monday
thanks to rising oil prices and a more optimistic tone in the
market, which took the shine off the U.S. dollar's safe-haven
status.
 Canadian bond prices were down across the curve as news
that the U.S. government had stepped in to prevent the collapse
of Citigroup (C.N: Quote), the world's largest banking group, prompted
demand for recently beaten down equities.
 At 12:35 p.m. (1735 GMT), the Canadian currency was at
C$1.2312 to the U.S. dollar, or 81.22 U.S. cents, up from
C$1.2772 to the U.S. dollar, or 78.30 U.S. cents, at Friday's
close -- marking the biggest one-day rise since Oct. 29.
 The gains came as oil prices rose nearly 8 percent on the
New York Mercantile Exchange CLc1 on expectations OPEC will
cut output to stem a 50 percent slide in crude prices since
early October.
 Canada is a major oil producer and the No. 1 supplier of
energy to the United States.
 A North American equity market rally after news the U.S.
government would bail out Citigroup by agreeing to shoulder
most of the bank's potential losses also sparked a renewed bid
for riskier assets.
 The Canadian currency has been closely following moves in
equity markets, where a string of losses had prompted a slew of
risk-averse investors to embrace the greenback.
 "We started off with a little bit of an optimistic tone and
I think that's buoyed global prospects and provided a little
bit of a lift for the Canadian dollar," said Michael Gregory,
senior economist at BMO Capital Markets.
 "But while the optimism may run for a day or two, the fact
of the matter is things are falling off quite sharply."
 Finance Minister Jim Flaherty said in an interview with CTV
television on Sunday that the global financial crisis may have
pushed Canada's economy into a "technical" recession, the first
time he has conceded that possibility.
 Data that showed consumer confidence in Canada dropped
further in November to a 26-year low as global economic turmoil
intensified had a momentary drag on the currency.
 BONDS RETREAT
 Canadian bond prices turned lower across the curve, largely
in line with the bigger U.S. Treasury market, as the Citigroup
rescue gave some relief to investors and left little interest
for more secure government debt.
 "People are a little more upbeat and (there is) a little
bit less risk worry, so bonds have given back a little bit of
the hefty gains they scored last week," Gregory said.
 But persistent fears about the unfolding credit crisis and
the slowdown in the global economy cushioned the slide in bond
prices.
 The Canadian overnight Libor rate LIBOR01 was 2.3166
percent, down from 2.4833 percent on Friday.
 Friday's CORRA rate CORRA= was 2.2430 percent, down
slightly from 2.2437 percent on Thursday. The Bank of Canada
publishes the previous day's rate at around 9 a.m. daily.
 The two-year bond eased 6 Canadian cents to C$101.80 to
yield 1.841 percent. The 10-year bond slid 12 Canadian cents to
C$106.18 to yield 3.480 percent.
 The yield spread between the two-year and 10-year bond was
166 basis points, down from 169 at the previous close.
 The 30-year bond shed 15 Canadian cents to C$115.95 to
yield 4.051 percent. In the United States, the 30-year treasury
yielded 3.736 percent.
 (Reporting by Frank Pingue; editing by Rob Wilson)