Foreign purchases of Canadian securities reached a record in May as demand for bonds was fed by a growing yield premium over U.S. debt and the currency weakened.
Foreigners purchased a net C$26.1 billion ($25.7 billion) of Canadian securities in May, Statistics Canada said today in Ottawa, following C$10.2 billion in April. Bond purchases of C$16.7 billion reached a three-year high, led by C$9.5 billion of existing federal government debt and another C$3.5 billion of debt from government-owned companies.
Purchases of money-market securities were C$7.35 billion in May, bringing the total held abroad to a record C$69.9 billion, Statistics Canada said today. Stock purchases of C$2.10 billion were the biggest since November.
“A steady diversification in economic exposure toward emerging market economies and superior fiscal fundamentals enhances the appeal of Canadian dollar assets,” said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit.
Investment in Canada may be high for at least a decade because of its stable economy, while the slowest U.S. recovery since the Great Depression is exacerbated by efforts to pare debt, Bank of Canada Governor Mark Carney said in an April 27 speech.
Canada has top rankings from the three major credit-rating companies, while the U.S. was stripped of its top AAA ranking on Aug. 5.
Canada’s dollar was the weakest against the U.S. dollar since September 2011 in May while its long-term bond yields paid the biggest premium over U.S. debt, Statistics Canada said.
May was also a month in which investor demand for European debt was hurt by an inconclusive Greek election that put the country’s fiscal rescue package in doubt as officials suggested the country may leave the 17-nation euro zone.
“The strong inflows into Canadian assets happened at the same time as euro-zone tensions re-intensified,” said Charles St-Arnaud, an economist at Nomura Holdings Inc. “An interesting difference this time is that the majority of the flow was into bonds rather than money-market instruments, signaling that investors are comfortable with Canada’s long-term outlook.”
Canadian government bonds rose today, with the yield on the benchmark 10-year security falling 3 basis points to a record 1.60 percent.
The Canadian dollar weakened 5.3 percent during May, falling as far as 1.0366 per U.S. dollar on May 31. The currency weakened 0.3 percent today to C$1.0172 at 10:14 a.m. in Toronto.
The previous record monthly net purchase of securities was C$22.9 billion in May 2010, in an archive dating back to 1988.
Canadians bought a net C$1.32 billion of foreign securities in May, Statistics Canada said. The country’s stock prices fell 6.3 percent that month to the lowest in almost two years.
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