News of Non-U.S. Dollar Canadian Bonds Fails to Strengthen Outlook for Euro

Includes: FXC, FXE, UDN, UUP
by: Don Dion

Canada wants to sell 10-year bonds denominated in euros this year, the first since issuing 10-year bonds in March 1999.

In 1999, the country sold 390 million euros of bonds, worth about C$650 million, when one Canadian dollar fetched about 0.60 euros. The Canadian dollar traded at about the same level in 2009 when those bonds came due.

One Canadian dollar currently trades at about 0.67 euros, in roughly the middle of its trading range over the past decade.

Although the story may attract some U.S. dollar bears who will crow about another nation issuing non-U.S. dollar debt, the implication for the U.S. dollar is quite limited. As one fixed-income analyst put it, the main goal is to attract more investors for Canadian sovereign debt.

In the near term, the outlook for the euro is more bearish. Europe may be forced to issue more debt to prop up Greece and other indebted countries, much as the U.S. government flooded the globe with Treasury debt to finance its bailouts of various financial entities. Canada’s unlikely to issue a huge amount of debt, but it will be selling into a weakening market.

Therefore, if anything, this news is bearish for the euro against the U.S. dollar in the near term. The easiest way to play a weakening euro is through PowerShares DB U.S. Dollar Bullish Fund (NYSEARCA:UUP), which resumed creation on Tuesday.

Disclosure: No positions