Foreign investors bought a record amount of Canadian debt in April, helping absorb a flood of new government and corporate bonds as investors turned to Canada as a safe place to park money amid market turmoil.
Investors from outside the country bought $54-billion worth of Canadian debt in April, according to data published by Statistics Canada on Tuesday. That’s up from $39.1-billion in the first three months of the year combined.
At the same time, foreign investors trimmed their exposure to Canadian shares by $4.9-billion, in the seventh straight month of divestment. Taken together, Canada saw a record $49.2-billion net inflow of foreign capital into the Canadian economy in April.
The surge in non-resident bond-buying happened as the federal government and its provincial counterparts ramped up financing efforts to pay for an unprecedented increase in public spending, and corporations looked to stabilize their balance sheets.
“It’s no exaggeration to say that foreign investors helped finance outsized funding by our governments and corporations, providing liquidity when it was most needed,” Warren Lovely, National Bank of Canada Financial Markets’ chief rate strategist, wrote in a note.
Non-resident investments in Government of Canada debt happened largely on the secondary market, where foreign investors bought $15.8-billion worth of outstanding federal government bonds and $10.2-billion worth of federal government money market instruments. Non-resident buyers took $5.3-billion worth of provincial debt, mostly new issues denominated in non-U.S. foreign currencies.
Meanwhile, Canadian corporations issued a record $25-billion worth of new bonds abroad in April, with Canadian banks and investment firms leading the way. The Canadian bond market seized up in March, as investors fled to the safety of government securities and corporate spreads widened. But this reversed in April, and a torrent of investment-grade deals hit the market.
The net inflows for corporate debt were offset by a $6.4-billion reduction in Canadian corporate paper held by non-resident investors.
"The strong inflows into Canadian debt markets reveal that, even during the height of the crisis in this country, Canada was seen as an attractive place to park funds,” CIBC Capital Markets economists Katherine Judge and Royce Mendes wrote in a note.
Canadians themselves sold far fewer foreign securities in April than they did in March. Foreign securities held by Canadian investors dropped by just $134-million in April, with significant sales of U.S. government bonds in April largely offset by investments in U.S. stocks and corporate bonds.
Canadian investors fled U.S. stock markets in March as markets tanked, trimming a record $29.2-billion from their U.S. holdings. As markets began to stabilize in April, Canadians added $4.4-billion worth of U.S. stocks.
“Canadian investment focused on market index funds and shares issued by large capitalization technology firms. In addition, Canadians invested in U.S. corporate bonds for a third consecutive month, adding $2.3-billion to their holdings during the month,” Statscan noted.
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Mark Rendell