Canada's international transactions in securities, May 2012

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Non-residents acquired a record $26.1 billion of Canadian securities in May, mainly in the form of government debt securities. Canadian investors made a modest $1.3 billion purchase of foreign securities in the month, following a divestment in April.

Foreign acquisitions of Canadian debt focus on federal government securities

Non-resident investors purchased $16.7 billion of Canadian bonds in May, the largest such inflow of funds in three years. This activity was led by a $9.5 billion foreign acquisition of federal government bonds mainly on the secondary market, largely composed of instruments at both ends of the maturity spectrum. Canadian long-term interest rates exceeded their US counterparts in May by the largest spread since September 2011, just as the Canadian dollar depreciated against the US dollar to the lowest level since September 2011.

Foreign investors added $3.5 billion of federal government enterprise bonds to their portfolios in May, a fifth straight month of investment in these instruments. The remainder of the inflows in the Canadian bond market were in provincial bonds, mainly US dollar-denominated new issues, as well as corporate bonds.

Chart description: Foreign portfolio investment in Canadian securities

CSV version of the chart

In addition, non-residents acquired $7.3 billion of Canadian money market instruments in May. Federal government paper accounted for $4.9 billion of the monthly foreign investment as overall net new issues of these instruments reached the highest level since June 2009. Foreign investors also purchased short-term debt securities issued by Canadian provinces and banks. Foreign investment in the Canadian money market began to strengthen in the second half of 2011, and by the end of May 2012, foreign holdings of Canadian money market instruments reached a new high of $69.9 billion.

Non-residents also increase their investment in Canadian equities

Foreign investment in Canadian equities amounted to $2.1 billion in May, the largest amount since November 2011. Secondary market purchases accounted for over two-thirds of the activity as non-residents invested in a well-diversified basket of Canadian equities. Canadian stock prices were down 6.3% in the month to their lowest level in nearly two years.

The trend of Canadian investment in foreign equities continues

Canadian investors added $1.7 billion of foreign equities to their holdings, extending an investment pattern that began in January 2011. Canadian pension plans again led this activity in May, as major global equity markets experienced significant declines. US stocks accounted for $1.1 billion of the outward investment. However, divestment of European and Asian equities had a moderating effect on overall outward equity investment.

Chart description: Canadian portfolio investment in foreign securities

CSV version of the chart

Canadian investors further divest foreign money market instruments

Canadians removed $402 million of foreign debt securities from their portfolios in May, largely US government securities. They reduced their holdings of foreign money market instruments by $844 million, mainly as a result of the largest monthly divestment of US government Treasury bills in 2012. Canadian investors acquired $442 million of foreign bonds, after having reduced their holdings in April. The investment was predominantly in Canadian dollar denominated bonds issued by US corporations, but this was partly offset by a divestment of US government bonds.