National Bank wonders whether Canada's provinces are "more exposed than ever" to the mood of foreign investors.
Statistics Canada numbers released today show that foreigners acquired a net $6.3-billion of provincial government bonds in May, second only to a record $6.7-billion in April, 2009, noted senior economist Marc Pinsonneault of National Bank in Montreal.
When provincial enterprises are added in, some $7.8-billion, or 51 per cent, of the net bond issues so far this year have been gobbled up by foreigners, Mr. Pinsonneault added in a report, noting the previous annual peak, in 2010, was 42 per cent.
"This is good news for many provinces that still need to borrow to finance budget deficits and capital expenses," he said.
"But are provinces more exposed than ever to the mood of foreign investors?"
As of May, Mr. Pinsonneault added, foreign investors were holding almost $165-billion of provincial government bonds, or 28.5 per cent of what he estimates is outstanding. That doesn't include provincial enterprises.
He also noted that Canada's provinces depended far more on foreigners in the mid-1990s.
Over all, according to Statistics Canada today, foreign investors took up $21.4-billion in Canadian securities in May, primarily government bonds. That's the highest in two years, the statistics agency added.
"This activity occurred against the backdrop of large increases in the net supply of bonds by the federal and provincial governments," it said.
"Canadian long-term interest rates were down by 18 basis points during the month."
Foreign investors acquired almost $16-billion in bonds alone in May, primarily those of governments.