Canadian bond yields jump after weak home sales data

Canadian bonds briefly gave up their gains on Monday after an unexpectedly sharp slowdown in home sales cast doubts over policymakers’ plans to step up the pace of monetary tightening following last week’s historic interest rate increase.

Yield on Canada’s 10-year dollar note, which moves inversely to prices, jumped to 1.905 per cent from 1.871 per cent within minutes after the latest snapshot of Canada housing market was released. It later eased to trade at 1.888 per cent at pixel time.

The move was triggered by news that Canadian home sales fell 6.7 per cent in June from the prior month, according to the Canadian Real Estate Association. That makes it the biggest monthly drop since June 2010 and the third straight month of decline recorded.

“Canadian economic and job growth have been improving, which is good news for housing demand,” said CREA president Andrew Peck. “However, it also means that interest rates have begun to rise, which may impact homebuyer confidence – particularly in pricier markets like Toronto and Vancouver where recent housing policies had already moved potential buyers to the sidelines.”

The slowdown in home sales could lessen the pressure on Bank of Canada officials to stay aggressive on rates. The bank raised its benchmark rate for the first time in seven years last week and hinted at further rate rises as the economy appears to have largely adjusted to the fallout in global oil price collapse.