Contrary to initial fears, the removal of foreign investment limits has created a global Canadian bond market, according to RBC Capital Markets.

These changes arose from the elimination in 2005 of the 30% foreign investment limit on Canadian pension and retirement savings funds.

Larry Bates, RBC Capital Markets’ head of debt capital markets in Canada recalled that when the federal government abolished the foreign investment limit in 2005, there was speculation that Canadian dollar bonds would suffer as investors looked abroad for investments.

“The opposite has occurred,” he says. “The global search for diversification has meant that foreign issuers see real advantages in issuing debt in Canada. The cost of funds in Canada is comparable to what can be achieved in other markets plus borrowers are able to access a new investor base.”

“In a very short period of time, we’ve seen significant growth in Canadian bond issues by foreign borrowers,” says Bates. “There is no doubt in my mind that we’ll see that growth continue. This is all about the globalization of the Canadian bond market.”

This week, RBC Capital Markets held a forum for American and European bond issuers and Canadian institutional investors with a new and larger interest in capitalizing on changes in the Canadian bond market.

The conference, held in Toronto and Montreal, connected more than 80 institutional investors with more than 30 bond issuers from the U.S. and Europe.

“Issuers are looking to Canada to get international bond deals done,” says Larry Bates, RBC Capital Markets’ head of debt capital markets in Canada. “Until last year, many Canadian investors were severely restricted in their ability to buy bonds issued by U.S. and European issuers, and thus, severely constrained in their search for diversification. For the first time in more than 30 years, large pools of domestic funds can look offshore for investment opportunities. And this is a very healthy turn of events for issuers.”

Indeed, through the first five weeks of 2006, the Canadian bond market has seen $3.5 billion in new issues by U.S. and European issuers, compared to $1.5 billion for the same period last year (prior to the elimination of the foreign investment limit).