BONDS CLIMB ALONG WITH OIL

Canadian bonds followed U. S. treasuries market higher in light trading yesterday. Renewed strength in world oil prices added to optimism that the Federal Reserve’s interest rate decision today will be accompanied by a statement acknowledging the potential economic challenges posed by soaring energy costs and the burdens of reconstruction following Hurricane Katrina in the southern United States.

The Canadian market largely mimicked gains for U. S. bonds, which were boosted by slumping equity markets and a surge in crude oil prices. Light crude oil for October delivery shot past $67 per barrel.

Hank Cunningham, managing director of fixed income at First Associates Investments in Toronto, said yesterday’s price gains bore out the recent “yin-yang” relationship between bonds and oil, where every uptick in oil prices is considered to have negative effects on future economic performance and is thus favourable for bonds.