Foreign investors bought $5 billion of Canadian securities in November, the largest inflow in over a year. But Canadians trumped that, snapping up $5.7 billion in foreign securities.
November was another good month for Canadian bonds, says BMO Nesbitt Burns. “Foreigners bought a net $1.8 billion in domestic fixed-income securities with Canadian dollar-denominated bonds taking the lion’s share. Investment in Canadian bonds was again mainly in secondary market products issued by the Federal Government to take advantage of the wide Canada/U.S. ten-year spread,” says Nesbitt. It notes that for the first 11 months of last year, foreigners bought a net $14.9 billion in domestic bonds.
“Foreigners were also net buyers of Canadian stocks in November; however, they were still on track to be net sellers in 2002 for the first time since 1995,” Nesbitt says.
CIBC World Markets says that attention was focused on money-market paper, where Canada’s significant yield premium over the US attracted a net inflow of $2.2 billion — the largest monthly increase observed so far in 2002. It notes that foreign holdings of Canadian corporate bonds were off for the third time in four months.
At the same time, Canadians bought $5.7 billion of foreign securities, with more than half of it directed towards U.S. Treasuries. Nesbitt says that Canadians were heavy buyers of both foreign bonds and stocks in November, the largest net outflow since February 2002. “Still, the year-to-date outflow of $23.1 billion appears set to fall well short of the prior year’s $37.7 billion,” Nesbitt reports.
“With Canadian purchases of foreign securities outpacing non-resident buying of Canadian portfolio assets, the resulting portfolio outflow helps to explain some of the C$’s weakness during November (when the loonie sold off to C$1.59/US$),” CIBC observes.