December 24, 2008 / 6:19 PM / in 11 years

CANADA FX DEBT-C$ rises in illiquid, shortened session

 * Canada dollar rises 0.4 percent
 * Bond price little changed, up slightly
 By Cameron French
 TORONTO, Dec 24 (Reuters) - The Canadian dollar
strengthened versus the U.S. currency on Wednesday, as thin
market volumes forced the currency to ride the wave of
corporate buyers and fund managers readjusting portfolios ahead
of the year end.
 Bonds ended little changed in a holiday-shortened session,
outperforming U.S. treasuries.
 At an early close of 1 p.m. (1800 GMT), the currency was at
1.2092 to the U.S. dollar, or 82.70 U.S. cents, up from
C$1.2146 to the U.S. dollar, or 82.33 U.S. cents, at Tuesday's
 With many market players out finishing up Christmas
shopping rather than watching data screens, the currency paid
little heed to its traditional drivers, rising despite a 3
percent drop in oil prices and not moving on
stronger-than-expect Canadian October growth data.
 "Really it's just been about the flows," said Steven
Butler, director of foreign exchange trading at Scotia Capital
in Toronto.
 "We did see a bit of corporate (U.S. dollar) selling today.
I think there was a bit of an overhang of (U.S.) dollar
 Canada's economy contracted by 0.1 percent in October,
compared with analysts' expectations of a 0.3 percent decline.
 Market players are largely in a wait-and-see mode as
January will bring an expected stimulus package in Canada's
federal budget, the inauguration of U.S. President-elect Barack
Obama, and an interest rate decision and Monetary Policy Report
Update by the Bank of Canada.
 Bond prices were little changed, outperforming U.S.
treasuries, which gave back early gains.
 Canadian bond yields hit their lowest in more than a decade
last week, and U.S. yields -- which have declined as the U.S.
Federal Reserve has chopped its key interest rate to nearly
zero -- are even lower.
 While Canada's economy is now believed to be in recession,
the country has not experienced real estate and financial
services meltdowns anywhere close to those in the United
 The two-year bond rose 2 Canadian cents to C$102.93 to
yield 1.205 percent. The 10-year bond climbed 7 Canadian cents
to C$111.92 to yield 2.801 percent.
 The yield spread between the two-year and 10-year bond was
at 161 basis points, up from 159 at the previous close.
 The 30-year bond edged up 5 Canadian cents to C$127.10 to
yield 3.489 percent. In the United States, the 30-year Treasury
yielded 2.636 percent.
 (Reporting by Cameron French; Editing by Frank McGurty)

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