Canadians bring their money home

Canadian investors were not just pulling money out of the domestic markets in October; they set a record $12.3 billion in divestment from foreign securities.

The sale of foreign bonds totalled $6.2 billion, with U.S. government bonds being the primary target for disposal, and with selling concentrated in shorter maturity bonds.

Canadians sold $1.7 billion in non-U.S. bonds in October, with the retirement of certain maple bonds being the primary cause, according to StatsCan.

Canadians sold off $299 million worth of foreign money market paper in October, and pared back their investment in U.S. Treasury bills to $501 million. The StatsCan report points out that Canadian short-term interest rates stood 130 basis points higher than those in the U.S., creating the largest spread since January 2004.

The 10-year bond dropped about $2 over the month, but on the long end of the curve, American Treasury bonds saw little change over the month. Both the 30-year and the 10-year have rallied dramatically in November, benefiting from investors’ flight to safety.

Not content with cashing in foreign bonds, Canadians also unloaded $5.8 billion worth of foreign stocks in October. More than 60% of this activity came from the U.S. market, making it the largest sale of U.S. equities by Canadian investors on record.

U.S. equity markets fell 17% in the month, following a 9% decline posted in September.

Over the course of the month, the Canadian dollar dropped nearly 11 cents, giving investors an added bonus when they sold foreign-denominated assets.

Not only did Canadian investors bring money home, but foreign investors continued to pump cash into Canadian securities to the tune of $2.8 billion. Bonds attracted $1.3 billion in net new cash, with a $2.9 billion shopping spree for government bonds being offset by retirements of provincial and corporate issues.

Equity investment totaled $988 million.

Foreign buyers eased up on their money market purchases, picking up just $513 million, or about half that of September.

(12/18/08)