Foreign investors cut back buying Canadian bonds

Foreign investors bought $4.4 billion of Canadian bonds in October, says National Bank Financial Inc. in a report,  for a total of $41.5 billion worth of bonds so far this year.

“Without context, positive multi-billion-dollar inflows for the latest month and the current year-to-date sounds healthy enough,” NBF says. However, there’s actually been “a truly striking drop-off” in the pace of foreign buying, it says.

Foreign bond buying was roughly $88 billion higher through the first 10 months of 2017, NBF says, calling 2018 activity “an unprecedented deceleration.” Specifically, foreign buying of federal government enterprise bonds is down 60% from last year, NBF says.

“All in all, 2018 has been a year to forget in terms of foreign flows into our bond market,” NBF concludes. “Problem is, Canada will still have a non-trivial current account deficit to finance in 2019. Based on the current trend, not much external financing arrives via net FDI inflows … so it might just take a cheap currency and/or wider spreads to attract needed foreign buying in the year ahead.”

Conversely, Canadian investors snapped up $14.9 billion worth of foreign securities, producing a net outflow of $11.0 billion from the Canadian economy during the month.

Through the first 10 months of 2018, portfolio investment generated a net inflow of just $4.8 bllion, compared with $100.7 billion for the same period in 2017, StatsCan says in a news release.

Foreign investment in Canadian equities came in at $1.8 billion in October, StatsCan says, while Canadian investors added $8.9 billion in foreign equities during the month.

Canadians also bought $6.0 billion worth of foreign debt in October, primarily non-U.S. foreign bonds and U.S. Treasuries.