2023.06.0719:22:00UTC+00Treasuries Move Notably Lower After Bank Of Canada Raises Rates

Treasuries showed a lack of direction over the two previous sessions but showed a significant move to the downside during trading on Wednesday.

Bond prices came under pressure in morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced 8.5 basis points to 3.784 percent.

The weakness among treasuries came after the Bank of Canada once again raised interest rates after leaving rates unchanged for two straight meetings, raising the concerns about the outlook for U.S. rates.

The Bank of Canada increased its target for the overnight rate by 25 basis points to 4.75 percent, citing stubbornly high inflation and stronger than expected economic growth.

Canada's central bank said the rate hike reflects its view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2 percent target.

"Canada's central bank is viewed as one of the leaders when it comes to being proactive with monetary policy," said Edward Moya, senior market analyst at OANDA. "They were the first to raise rates in 2022 and then put them on hold earlier this year."

He added, "The BOC is signaling that more rate hikes could come and that has everyone rethinking that the Fed will be done after the July hike."

The Federal Reserve is scheduled to announce its latest monetary policy decision next Wednesday, with the central bank widely expected to leave interest rates unchanged.

CME Group's FedWatch Tool is currently indicating 70.1 percent chance the Fed will leave rates unchanged next week but a 51.8 percent chance of another rate hike in July.

In U.S. economic news, a report released by the Commerce Department showed the U.S. trade deficit widened significantly in the month of April.

The Commerce Department said the trade deficit increased to $74.6 billion in April from a revised $60.6 billion in March.

Economists had expected the trade deficit to jump to $75.2 billion from the $64.2 billion originally reported for the previous month.

The wider trade deficit came as the value of exports plunged by 3.6 percent to $249.0 billion, while the value of imports surged by 1.5 percent to $323.6 billion.

Looking ahead, trading on Thursday may be impacted by reaction to the Labor Department's report on initial jobless claims in the week ended June 3rd.