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Canada's international transactions in securities
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Canadians continued to divest foreign securities in September, shedding a significant $4.5 billion worth. This followed a record $7.1 billion divestment in August. In both months, this activity was mainly due to a substantial disposition of foreign money market instruments. Meanwhile, non-residents removed $5.2 billion worth of Canadian securities from their holdings, split almost equally between bonds and equities. September marked the fifth consecutive month in which non-residents divested from Canadian securities.
Heavy divestment by residents in foreign money market instruments for the second month
Canadians disposed of $4.4 billion worth of foreign money market instruments in September, adding to August's record divestment of $7.0 billion. In both months, the divestment was focussed on non-US foreign paper.
Currency-wise, the reduction in holdings in September was equally split between Canadian dollar-denominated and US dollar-denominated foreign paper. However, over 80% of August's divestment was in Canadian dollar-denominated foreign paper.
On a sector basis, over 60% of the divestment was in money market instruments issued by foreign banks. In addition, Canadians disposed of $605 million worth of US treasury bills, following investments totalling $1.1 billion in these instruments in July and August.
Related market informationIn September, Canadian short-term interest rates increased by 14 basis points to 3.97%, while US short-term rates dropped 31 basis points to 3.89%. The resulting differential of 8 basis points caused short-term rates to favour investment in Canada for the first time since February 2005. Both Canadian and US long-term interest rates inched up in September, by 3 and 6 basis points respectively. Canadian interest rates stood at 4.41%, while US rates rose to 4.63%. The resulting differential between the two countries increased to 22 basis points in favour of investment in the United States. After three consecutive months of decline, Canadian stock prices rebounded 3.2% in September, as the Standard and Poor's / Toronto Stock Exchange Composite Index closed the month at a record 14,098.9. Meanwhile, US stocks gained 3.6% in September with the Standard and Poor's Composite Index reaching 1,526.8 at month's end. The Canadian dollar hiked 5.8 cents US in September, the second highest monthly increase on record. The Canadian dollar traded for $1.005 US, the highest level since November 1976. At the end of September, the Canadian dollar had increased 15.56 US cents since the beginning of 2007. 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. |
Residents also dispose of foreign bonds
Canadians trimmed $940 million worth of foreign bonds from their holdings in September, following a similar divestment ($1.1 billion) in August. Residents had been investing an average $4.1 billion per month from December 2005 to July 2007.
Over the month, Canadians sold $1.1 billion worth of US government bonds, continuing the divestment trend started in June. In September, the prices of US government benchmark bonds soared in response to the deep cut in interest rates by the US Federal Reserve. The majority of the sales in September involved bonds with shorter term to maturity (2 to 5 years) compared to August (5 to 10 years).
Currency-wise, residents sold $341 million worth of maple bonds (Canadian dollar-denominated foreign bonds) in September, the second consecutive month of divestment in these instruments.
Canadians buy US equities
Residents continued to acquire foreign corporate shares for the 12th consecutive month, adding $792 million worth in September. Investment centred on US equities as residents acquired $944 million worth.
Decrease in foreign holdings of Canadian bonds due to record retirements
Foreign investors cut $2.6 billion worth of Canadian bonds from their holdings in September. This reduction was due to a record level of net retirements ($6.5 billion), as non-residents invested $4.2 billion in outstanding bonds. Net retirements were mostly in Canadian dollar-denominated bonds, and were split between federal and provincial government bonds, as well as federal government enterprise bonds.
The $4.2 billion foreign investment in outstanding bonds was composed mainly of Canadian dollar denominated-bonds issued by the federal government ($1.5 billion) and its enterprises ($2.7 billion).
Non-residents buy US dollar-denominated Canadian money market paper
Foreign investors bought $303 million worth of Canadian money market paper in September, switching from two months of divestment totalling $1.5 billion.
September's investment was largely in federal enterprise paper ($589 million) and other Canadian corporate paper ($283 million). Meanwhile, non-residents disposed of $572 million worth of government treasury bills.
On a currency basis, all foreign investment was in US dollar-denominated paper ($498 million worth), as non-residents divested $274 million worth of Canadian dollar-denominated foreign paper. In September, the Canadian dollar strongly appreciated against its US counterpart and reached its highest level in the past three decades.
More divestment in outstanding Canadian stock
Non-residents sold $2.9 billion worth of Canadian stocks in September, despite a rebound in Canadian equity prices. This closes the third quarter of 2007 with a record divestment of $8.5 billion worth. September's reduction in foreign holdings was mainly in outstanding Canadian stocks as non-residents sold $2.4 billion worth. Geographically, American and European investors sold $1.4 billion and $1.8 billion worth respectively.
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 September 2007 issue of Canada's International Transactions in Securities (67-002-XWE, free) will be available soon.
Data on Canada's international transactions in securities for October will be released on December 17.
For more 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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