Canada's international transactions in securities

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Canadians sharply increased their holdings of foreign securities by $6.1 billion in February. This reflected a rebound in the demand for both foreign stocks and bonds. Meanwhile, non-residents acquired $3.8 billion worth of Canadian securities over the month, their largest monthly purchase since April 2007. Canadian dollar-denominated outstanding bonds accounted again for the majority of the foreign investment.

Canadian purchases of foreign bonds rebound

February marked a $2.6 billion acquisition of foreign bonds, following two straight quarters of sell-offs in the context of the global credit market meltdown. Over the month, Canadian investors bought $2.4 billion worth of US government bonds, fuelled by strong demand for medium-term bonds (5 to 10 years) as the yields on those instruments advanced.

Canadians also invested modestly in US corporate bonds ($113 million). Purchases of non-US bonds remained minimal ($72 million), mainly as a result of net sales of Canadian dollar-denominated non-US bonds.

Holdings of foreign money market instruments edge down

After investment in foreign money market paper reached a six-year high of $2.5 billion in January, Canadians divested to a small extent ($284 million) in February, nearly all of it being non-US foreign paper. Meanwhile, domestic holdings of both US government Treasury bills and other US paper remained almost unchanged. In February, US short-term interest rates fell 63 basis points to 2.12%, the lowest level since December 2004.

Heavy investment in US stocks as prices fall to an 18-month low

Canadian investors resumed substantial purchases of foreign stocks in February, adding $3.8 billion, more than replenishing January's reduction of $2.3 billion. The majority of the outflows in February went to buy US shares ($2.9 billion). In February, US stock prices fell for a fourth consecutive month to an 18-month low and the Canadian dollar remained at parity with its US counterpart, making US corporate shares relatively less costly to acquire.

Strong foreign demand for Canadian bonds persists

Following heavy purchases of $6.3 billion in January, non-residents added a further $3.7 billion worth of Canadian bonds to their portfolios in February, with the Canadian dollar-denominated outstanding issues again accounting for the majority of the investment. Regionally, British and Asian investors accounted for the demand, while US investors reduced their holdings by a sizeable amount.

On a sector basis, non-residents went on the sixth consecutive month of acquisitions of federal enterprise bonds ($2.6 billion), almost all outstanding bonds. However, they trimmed their holdings of Canadian private corporations bonds ($171 million), following a string of purchases that began in May 2007. In February, the average yields on corporate bonds fell to the lowest level since September 2005.

Meanwhile, non-residents increased their holdings of Government of Canada bonds by $730 million, largely in outstanding issues. Investment activity was concentrated in federal bonds with longer term-to-maturity, as non-residents disposed of a sizeable amount of shorter term bonds (less than two years). Foreign investors also added $650 million worth of provincial government bonds, reflecting the largest amount of new issues over the past nine months.

Foreign interest in Canadian money market continues to wane

Foreign investors continued to cut their holdings of Canadian money market instruments, down $1.2 billion in February and $2.1 billion in January. Foreign holdings of paper issued by the federal government and its enterprises both continued to decline in February, accounting for most of the decline during the month.

Non-residents reduced $508 million worth of federal enterprise paper in February. Foreign investors have been selling federal enterprise paper for three consecutive months while buying federal enterprise bonds since September 2007, suggesting a shift in favour of longer-term debt instruments.

Foreign divestment in federal government short-term paper slowed to $410 million, as reductions of Treasury bills were partially offset by investment in US-dollar Canada bills. In addition, non-residents disposed of $301 million worth of paper issued by private corporations, the most in the past six months. In February, the average yields for finance company three-month paper fell for a third consecutive month to the lowest level in the past two years.

US investors continue to acquire Canadian shares

Non-residents bought $1.3 billion of Canadian shares in February, as Canadian stock prices rebounded. The majority ($1.2 billion) of this acquisition was in outstanding Canadian equities, with gold, mining and energy sectors attracting the largest foreign inflows.

February marked the third consecutive month of foreign investments in outstanding Canadian shares, despite a steep drop in Canadian stock prices in January. Since December 2007, investments by US investors accounted for nearly all the monthly purchases of outstanding Canadian shares, as the US stock markets posted consecutive losses.

Available on CANSIM: tables 376-0018 to 376-0029, 376-0042, 376-0058 and 376-0063.

Definitions, data sources and methods: survey number 1535.

The February 2008 issue of Canada's International Transactions in Securities (67-002-XWE, free) will soon be available.

Data on Canada's international transactions in securities for March will be released on May 20.

For general information or to order data, contact Client Services (613-951-1855; infobalance@statcan.gc.ca). To enquire about the concepts, methods or data quality of this release, contact Yiling Zhang (613-951-2057), Balance of Payments Division.

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