Analysis - June 2007
Archived Content
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please "contact us" to request a format other than those available.
Canadians acquired $4.9 billion worth of foreign securities in June, ending the quarter with a near-record purchase totalling $23.8 billion. June's investment was focused on debt instruments, split almost equally between bonds and money market paper.
Meanwhile, non-residents removed $4.5 billion worth of Canadian securities from their portfolios in June, adding to the $2.6 billion disposed in May. Foreign divestment was concentrated in Canadian bonds and stocks, while non-residents invested in Canadian money market instruments.
Record investment in foreign money market instruments
Canadians invested a record $2.2 billion in foreign money market instruments in June, offsetting the disposition over the previous two months. June's acquisition was fuelled by investment in US corporate paper and non-US paper, totalling $930 million and $1.4 billion respectively. Meanwhile, resident investors sold $118 million worth of US government treasury bills. On a currency basis, nearly two-thirds ($1.4 billion) of June's investment were in acquisitions of Canadian dollar-denominated foreign paper.
Related market information
In June, the gap between Canadian and US short-term interest rates narrowed yet again, by 25 basis points to 0.19%, its lowest margin of difference since April 2005. For the month, Canadian rates increased 13 basis points to 4.42%, their highest level since May 2001. Meanwhile, American rates fell 12 basis points, settling at 4.61%.
Canadian long-term interest rates moved up 14 basis points to 4.62% at the end of the month, while American long-term interest rates increased 21 basis points to 5.09%. This caused the interest rate differential, which favours the United States, to increase to 47 basis points.
In June, Canadian stock prices fell for the first time since July 2006, dropping 1.1% from the record level in the previous month. The Standard and Poor's / Toronto Stock Exchange composite index ended the month at 13,906.6. Meanwhile, American stock prices also experienced a decline of 1.8% with the Standard and Poor's Composite 500 Index standing at 1,503.4 at the month's end.
The Canadian dollar rose 0.37 US cents by the end of June to 93.86 US cents, its highest level since June 1977.
Definitions
The data series on international security transactions cover portfolio transactions in stocks, bonds and money market instruments for both Canadian and foreign issues.
Stocks include common and preferred equities, as well as warrants.
Debt securities include bonds and money market instruments.
Bonds have an original term to maturity of more than one year.
Money market instruments have an original term to maturity of one year or less.
Investment in foreign bonds slows down
Canadians invested $2.6 billion in foreign bonds in June, slowing down after three consecutive months of heavy acquisitions totalling $21.3 billion. The more moderate level of foreign bond acquisition seen in June was mainly caused by residents selling $1.7 billion worth of US government bonds. Meanwhile, Canadian investment in US corporate bonds and non-US bonds remained robust at $1.6 billion and $2.8 billion respectively. Currency-wise, residents acquired $2.9 billion worth of Canadian dollar-denominated foreign bonds, largely non-US bonds, down from $4.7 billion in May.
Canadians buy US stocks and sell non-US stocks
Residents invested a nominal $69 million in foreign stocks in June as a $2.2 billion divestment in non-US stocks nearly offset the entire investment in US stocks. Investment in foreign stocks declined significantly in May and June, after a string of strong purchases from November 2006 to April 2007, averaging $3.5 billion per month.
Foreign investment focuses on short-term Canadian debt instruments
Non-residents purchased $1.5 billion worth of Canadian money market paper in June, the highest level of investment over the past 12 months. Foreign acquisition was almost entirely in federal government treasury bills as non-residents bought $1.4 billion worth, switching from five consecutive months of divestment totalling $3.1 billion. In June, Canadian short-term rates hiked 13 basis points to 4.42%, reaching their highest level since May 2001. Meanwhile, US short-term rates dropped in June, narrowing the differential between Canadian and US rates to 0.19% from 0.44% in May.
Non-residents reduce holdings of federal and provincial governmentbonds
After two months of small divestment, non-residents removed a sizable $4.5 billion worth of Canadian bonds from their portfolios in June, the largest monthly disposition since January 2006. Over two-thirds of the month's divestment were in outstanding bonds, nearly all Canadian dollar-denominated.
On a sector basis, June's reduction in foreign holdings of Canadian bonds was concentrated in issues of federal and provincial governments. The $5.7 billion disposition of federal government bonds, immediately following two consecutive months of divestment totalling $2.9 billion, was almost equally split between outstanding bonds and retirements. Meanwhile, non-residents cut $2.4 billion worth of provincial government bonds from their portfolios, largely due to retirements. On the other hand, non-residents acquired federal enterprise and corporate bonds of $2.1 billion and $1.7 billion worth respectively, almost all new issues.
Foreign divestment of Canadian stocks continues
Non-residents sold $1.4 billion worth of Canadian stocks in June, adding to a divestment of $2.9 billion in May. June's disposition was mainly attributable to foreign takeover activity leading to the retirement of Canadian shares from the market. Canadian stock prices dropped 1.1% in June after reaching a record high in May.
- Date modified: