CANADA FX DEBT-C$ closes at highest level in nearly a week

Mon Nov 24, 2008 4:45pm EST
 
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 * C$ draws support from surge in oil prices
 * Improved market sentiment also pays key role
 * Bond prices get hit by Citigroup rescue plan
 By Frank Pingue
 TORONTO, Nov 24 (Reuters) - The Canadian dollar jumped to
its highest level in nearly a week on Monday as a surge in the
price of oil and a rally in global equity markets took a bit of
the shine off the U.S. dollar's recent safe-haven status.
 Canadian bond prices ended down across the curve as news
that the U.S. government had stepped in to prevent the collapse
of Citigroup, the world's largest banking group, sparked
intense demand for recently beaten down equities.
 The Canadian dollar closed at C$1.2345 to the U.S. dollar,
or 81.00 U.S. cents, up from C$1.2772 to the U.S. dollar, or
78.30 U.S. cents, at Friday's close.
 The Canadian dollar's rally, which came after two losing
weeks during which it shed a total of 7 percent, marked its
biggest one-day percent gain in since Oct. 29.
 A surge in the price of oil, a key Canadian export, and a
rally in equity markets got credit for the currency's latest
rise since it was lower oil prices and falling equities that
had weighed on the currency in recent weeks.
 The bid for stocks followed news that the U.S. government
would bail out Citigroup by agreeing to shoulder most of the
bank's potential losses.
 The Canadian currency has been closely following moves in
equity markets, where heavy losses had prompted a slew of
risk-averse investors to embrace the greenback.
 "Obviously a broad U.S. dollar soft tone today was part of
the reason for the rally in the Canadian dollar, and we also
saw oil prices firm up ... so that's probably the second leg of
the source of support for the Canadian dollar," said Charmaine
Buskas, senior economics strategist at TD Securities.
 "Those have been the two big drivers drivers for the
Canadian dollar going back for several weeks now and the
reversal of those two factors just are really what's driving
activity today,"
 The dollar showed little interest in comments by Canadian
Finance Minister Jim Flaherty, who said the country's economic
picture is not improving and that it is reasonable that the
economy could soon fall into recession.
 Many market participants have long since accepted that
Canada's economy will fall into a recession, which is usually
defined as two straight quarters of economic contraction.
 BONDS DROP
 Canadian bond prices all ended lower along with a drop in
the bigger U.S. Treasury market as the Citigroup rescue gave
some relief to investors and left little interest in buying
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," said Michael Gregory,
senior economist at BMO Capital Markets.
 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 fell 4 Canadian cents to C$101.83 to
yield 1.829 percent. The 10-year bond slid 33 Canadian cents to
C$105.97 to yield 3.506 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 45 Canadian cents to C$115.65 to
yield 4.067 percent. In the United States, the 30-year Treasury
yielded 3.784 percent.
 (Reporting by Frank Pingue; editing by Peter Galloway)