Foreign holdings of Canadian securities fell by $3.1 billion in January. Statistics Canada said Tuesday that heavy retirements of foreign-held Canadian bonds dominated portfolio transactions for a second straight month.

BMO Nesbitt Burns attributes the outflow primarily to provincial bond selling. “The bulk of the decline in non-resident holdings was due to the maturity of just under $6 billion of Canadian provincial bonds. The retirements were largely foreign currency bonds, as non-residents were net buyers of Canadian dollar denominated securities, attracted by relatively wide spreads, and the much stronger loonie,” it says. “Foreign bond purchases were concentrated in outstanding issues of the Federal Government and Canadian corporations.”

CIBC World Markets points out, “Note that the majority of January’s maturities were denoted in US dollars, with net foreign investment in Canadian dollar bonds actually rising by a little more than $2 billion in the month.”

BMO also notes that Canadian stocks were also sold, breaking a brief two-month period of acquisition, while non-residents continued to add to their Canadian money market positions. “Non-residents continue to adopt a cautious attitude when it comes to investing in Canadian stocks. In fact, January saw a $0.6 billion net reduction in foreign-held equities,” says CIBC. “The money market is one area that has managed to attract foreign investor interest of late, owing to increasingly generous Canada/U.S. spreads.”

Canadians remained unenthusiastic about foreign stocks in January, reducing their holdings by $230 million. However, Canadians invested $333 million in foreign bonds, leading to a small net investment in foreign securities.

“The draw from wider spreads continues to attract foreign capital into the money-market, but massive bond maturities have meant net portfolio flows haven’t gained much traction in recent months,” concludes CIBC.