TORONTO, Dec 3 (Reuters) - Canada's auction of real return bonds on Thursday was well received, pricing two to three basis points better than where the bonds were trading prior to the auction, market players said.
It was a "strong auction," said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.
The C$700 million ($524.62 million) auction was a reopening of the Canadian government's 1.25 percent real return bond, maturing December 1, 2047. It produced a 0.745 percent allotment yield.
The auction's bid-to-cover ratio dipped to 2.34 from 2.68 at the previous real return bond auction on September 2, but for an increased issue amount versus C$400 mln in September.
The inflation breakeven widened 7 basis points from Wednesday to 158.7 basis points. But this was mostly in reaction to the jump in nominal bond yields, according to Chandler, after the European Central Bank disappointed some investors.
Inflation breakevens reflect the spread between yields on nominal bonds and yields on real return bonds. A wider breakeven implies increased inflation risk.
Nonetheless, the breakeven is "still relatively low," according to Chandler.
It has narrowed from 2 percent in the spring of 2014.
$1 = 1.3343 Canadian dollars Reporting by Fergal Smith; Editing by David Gregorio