Foreign investors' Canadian bond frenzy hits record high year-to-date
Net foreign investment in local securities was $20.9B in May, the third straight month of net inflows
Global investors’ enthusiasm for Canadian bonds continued its rapid pace in May, with year-to-date acquisitions of Government of Canada bonds at a record high, according to the latest Statistics Canada data.
Net foreign investment in Canadian securities was $20.9 billion in May, marking the third straight month of net inflows. Year-to-date purchases of Government of Canada (GoC) bonds by global investors have reached an unprecedented $49.7 billion.
The GoC bond purchase record comes amid a general frenzy for Canadian bonds both government and corporate. Year-to-date purchases reached $110 billion, the second-highest total on record. The 2024 amount, National Bank Financial Markets rates strategists Warren Lovely and Taylor Schleich note, is “only trailing the once-in-a-generation debt issuance binge of 2020.”
Canadian investors, meanwhile, bought a net $3.9 billion worth of international securities in May, following an April where retreating markets saw Canadians sell $11.6 billion of foreign equities and a net foreign investment just above zero.
Canadians spent $3.8 billion on foreign bonds and $2.6 billion worth of U.S. shares in May but sold off $1.9 billion worth of other foreign shares.
Around two-thirds of the $19.6 billion total foreign spend on Canadian bonds in May was on GoC bonds, the largest amount this year. “In the 12-month period to May 24, non-residents absorbed more GoCs than all domestic investors combined,” Lovely and Schleich wrote.
"This has the non-resident ownership share of GoC bonds climbing steadily, topping 36 per cent and edging ever closer to a record ownership share."
Though some risk accompanies foreign ownership, Lovely and Schleich write that the "broader and deeper non-resident interest increasingly on display seems to us a vital source of secondary bond market liquidity."
The focus on GoC bonds has been “fortuitous,” Lovely and Schleich say, because of the Bank of Canada’s current quantitative tightening efforts, in which it has been reducing its bond holdings after buying up significant amounts during the pandemic.
The BoC’s footprint in the GoC market is over two-thirds of the way back to its pre-pandemic size, Lovely and Schleich write. Less than three years ago, the BoC owned 43 per cent of the market, they say, but the central bank's share is now approaching 20 per cent.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android.