Statistics Canada data shows federal government bonds increased demand
With talk of tariffs on billions of dollars of Canadian exports to the US raging following Donald Trump’s re-election, foreign investors wanted to own a piece of the federal government’s debt.
No doubt betting on Ottawa needing to support impacted industries, foreign investors acquired $13.9 billion of federal government bonds in December, the highest level of investment in these securities since April 2020, when the pandemic was starting to take hold.
Another factor in play was the jumbo interest rate cut by the Bank of Canada from 3.75% to 3.25% at its December meeting.
New Statistics Canada data shows that foreign investors pulled back from corporate bonds, reducing their exposure by $8.2 billion, the most since July 2020, and focused on government enterprises bonds. Investment in money market instruments fell from $19.5 billion in November to $6.7 billion in December and was mostly focused on corporate paper.
Canadian equities were not favoured by foreign investors as the S&P/TSX Composite Index lost 3.6% in the month. Their investment was just $500 million, although this was an improvement from November when they divested $8.6 billion.
The total acquisition of securities by non-resident investors was $14.4 billion, following $16.4 billion in November and $21.5 billion in October.
Meanwhile, Canadian investors eased back on their investments in foreign securities with just $3.8 billion acquired in December versus $17.6 billion in November.
After two months of significant investment in foreign debt securities totalling $24.9 billion, Canadian investors sold a net $1.5 billion of these securities, led by a divestment of $4.1 billion in US government bonds.
Canadian investors bought $4.4 billion in US equities and a total of $5.3 billion in foreign equities.
Overall, international transactions in securities generated a net inflow of funds of $10.6 billion in the Canadian economy in December and $81.1 billion for the whole-year of 2024.
