TORONTO, Aug 15 (Reuters) - The Canadian dollar closed at
its lowest level versus the U.S. currency since late May on
Wednesday as concerns about credit issues showed no sign of
Canadian bond prices were mixed despite jittery market
conditions that would normally suggest a rally in bonds.
The Canadian dollar closed at C$1.0778 to the U.S. dollar,
or 92.78 U.S. cents, down from C$1.0667 to the U.S. dollar, or
93.75 U.S. cents, at Tuesday's session close.
Early in the session the Canadian unit fell to C$1.0796, or
92.63 U.S. cents, on concerns about Canada's commercial paper
The U.S. subprime mortgage crisis that picked up steam last
week spilled into Canada this week, hitting the asset-backed
commercial paper market.
"Canada has its own little maelstrom here which is the woes
with one particular commercial paper borrower and the concerns
that exist around that," said Eric Lascelles, strategist at TD
"That's why in Canada, for the most part in the last few
days ... the currency has been hammered really hard and right
across the board we've seen all sorts of substantial concerns
Earlier this week, Coventree Inc. (COF.TO: Quote, Profile, Research), the largest
nonbank player in Canada's asset-backed commercial paper
market, blamed the U.S. subprime mortgage problems for making
the domestic market unfavorable for its issues. Dominion Bond
Rating Services later warned of possible defaults in Canada's
asset-backed commercial paper market.
The events have pulled the Canadian dollar further from its
30-year high of C$1.0340, or 96.71 U.S. cents, reached July 25,
when several market participants were predicting the currency
would soon reach parity with the greenback.
A report on Wednesday showed manufacturing shipments
declined for the third straight month in June because of the
lofty Canadian dollar. But the data had little impact on the
Canadian dollar as the market was focused on credit issues.
Canadian bond prices edged a touch higher on the short end
while longer-dated bonds turned lower despite the slump on
North American stock markets, a factor that would normally
support higher bond prices right across the board.
"I think there are some relative value players in there
saying 'holy cow Canada's got some nice opportunities right
now,'" Lascelles said of the drop in longer-dated bonds.
The two-year bond ended up 1 Canadian cent at C$99.06 to
yield 4.3000 percent, while the 10-year bond fell 15 Canadian
cents to C$96.52 to yield 4.442 percent.
The yield spread between the two-year and 10-year bond
moved to 14.2 basis points from 11.9 at the previous close.
The 30-year bond dropped 72 Canadian cents to C$109.15 to
yield 4.442 percent. In the United States, the 30-year treasury
yielded 5.026 percent.
The three-month when-issued T-bill yielded 4.41 percent,
down from 4.43 percent at the previous close.