Canadian government bonds attract foreign buyers

(December 23, 2002) Foreign investors purchased $6.7 billion worth of Canadian government bonds in October, the largest bond investment of the year, Statistics Canada says. Foreigners also reduced their holdings of corporate bonds by $2.5 billion and divested $900 million in stocks.

“Foreign acquisitions of Canadian bonds were largely in the secondary market for federal government issues,” StatsCan said in its monthly report on international securities transactions, in contrast to the first seven months of the year when corporate bonds attracted the lion’s share of investments.

“October was certainly a very good month for Canadian bonds,” said BMO Nesbitt Burns chief economist Dr. Sherry Cooper in an online commentary.

The difference between U.S. and Canadian short and long-term interest rates continues to favour investment in Canada, Statistics Canada noted.

Foreigners sold off Canadian stocks for the second consecutive month in October, despite a small 1% gain on the Toronto Stock Exchange.

Meanwhile, Canadian investors sold international stocks and bonds in October. After acquiring $1.8 billion of foreign bonds in September, Canadians reduced their bond holdings by $2.9 billion in October, mainly U.S. treasuries.

Still, StatsCan says Canadian investors have added $3.3 billion in foreign bonds so far this year, compared with no net investment for the same period in 2001.

Canadian investment in foreign stocks has slowed since April and turned into a record $600 million divestment in October, consisting entirely of overseas equities, StatsCan said.

“The love affair with global stocks is officially over,” Cooper added.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca