Canada's international transactions in securities

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Cross-border financial activity in securities in August extended the trend of significant foreign investment in Canadian bonds and moderate Canadian investment in foreign equities that has been evident over most of the last 20 months. Non-residents purchased $11.1 billion of Canadian securities in August with the majority of the investment going to corporate and government business enterprise bonds. Meanwhile, Canadians acquired $3.4 billion of foreign securities, led by foreign stocks.

Non-residents favour Canadian corporate bonds

Non-residents invested $10.8 billion in Canadian bonds in August, the second largest inflow in 2010. Canadian private corporate bonds attracted $5.3 billion of foreign inflows, a level last seen in November 2009. Foreign acquisitions of net new issues accounted for nearly 60% of these inflows, led by bonds of resources and transportation firms offering attractive yields. In addition, non-residents continued to acquire sizeable amounts of Canadian mortgage bonds on secondary markets.

Foreign investors purchased $3.2 billion worth of federal government enterprise bonds in August, the highest level since May 2009. Foreign inflows were almost equally split between net new issues and secondary market transactions.

Foreign purchases of both federal and provincial government bonds were lower in August. Over the month, Canadian long-term interest rates dropped to their lowest level since December 2008.

Non-residents reduced their holdings of Canadian money market instruments by $705 million. The divestment was concentrated on paper issued by provinces and federal government enterprises, mainly due to retirements. Foreign investment in federal government paper slowed to $404 million in August.

Foreign investment in Canadian stocks increases

Non-residents acquired $995 million of Canadian stocks in August, driven by an increase in foreign purchases on secondary markets as Canadian stock prices rose 1.7%. This inflow was moderated by retirements of Canadian equities due to cross-border mergers and acquisitions.

Canadian investment in US stocks accelerates

Canadian investors added $2.5 billion of foreign stocks to their portfolios in August, the largest such outflow since March. The activity was led again by pension and mutual funds. Of the investment, three-quarters were directed to US stocks, making for the 10th month of acquisitions of these instruments, even as American equity prices retreated 4.7% in August. The balance of the Canadian investment comprised acquisitions of non-US stocks, following a sizeable divestment in July.

Canadians place funds in foreign short-term debt instruments

Canadians acquired $1.0 billion of foreign money market instruments in August. This activity was the largest in nine months and focussed on US Treasury bills. The differential between long- and short-term US interest rates fell substantially in August as long-term rates dropped 50 basis points.

Residents further reduced their holdings of foreign bonds in August by $109 million. The divestment was in US bonds, mostly US corporate bonds, due to retirements of maple bonds (the Canadian dollar-denominated foreign bonds). On the other hand, Canadians added bonds issued by European banks.

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 August 2010 issue of Canada's International Transactions in Securities (67-002-X, free) will soon be available.

Data on Canada's international transactions in securities for September will be released on November 18.

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; yiling.zhang@statcan.gc.ca), Balance of Payments Division.