Financial flows

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Second quarter 2007

Financial flows note to readers

Highlights

Total funds raised by domestic non-financial sectors on financial markets amounted to $121.6 billion in the second quarter of 2007 (seasonally adjusted at annual rates), down from the first quarter of 2007. New private sector financing by both households and non-financial corporations was more than offset by the drop of government sector marketable debt, which was driven by a sharp reduction in federal government short-term paper.

Chart E.1 Overall demand for funds falls

Rising indicators characterized financial markets during the second quarter of 2007. The S&P/Toronto Stock Exchange Composite Index broke the 14,000 mark during the quarter, closing the quarter at 13,906. Although the bank rate had continued unchanged since May 2006, both mortgage rates and bond yields rose modestly after remaining steady during the first quarter of 2007.The Canadian dollar appreciated to the 91 cent mark against the US dollar during the second quarter of 2007.

Household sector

Households continued the trend of stronger borrowing in terms of mortgage and consumer credit. Sustained growth in new housing investment and strong growth in the re-sale market in the second quarter was a factor behind increased mortgage demand. A pick-up in consumer spending, particularly on consumer durables, contributed to increased recourse to consumer credit.

Household debt in the form of mortgages and consumer credit as a proportion of disposable income edged up, amounting to 113.3%. However, debt servicing charges remained stable at about 8% of personal disposable income.

Lower saving in the second quarter translated into a slower accumulation of financial assets. Investment in financial assets by households during the second quarter was led by the acquisition of deposits and pension assets.

Corporate sector

The corporate sector’s position as net lender to the rest of the economy remained strong in the second quarter, with corporate saving remaining at high levels.

Private non-financial corporations were active in financial markets, particularly in new share issuances. The faster growth of net saving and share issues relative to debt bodes well for changes in leverage for this sector, in terms of debt to equity.

Financial institutions added substantially to their holdings of deposits, bonds and foreign investments in the second quarter, while reducing their positions in short-term paper.

Government sector

A significant reduction of federal government short-term debt, as well the extension of the trend of retirements exceeding gross new issues for Government of Canada bonds, resulted in a significant drop in overall government sector debt. This was only partly offset by net new financing by other levels of government. The overall government surplus expanded in the second quarter of 2007, largely on strong revenue growth.

Chart E.2 Net reduction in total government market debt

Data tables

• Table E.1 Financial market summary table
• Table E.2 Sector accounts - Persons and unincorporated businesses
• Table E.3 Sector accounts - Corporations and government business enterprises: Total
• Table E.4 Sector accounts - Government
• Table E.5 Sector accounts - Non-residents

Information on methods and data quality available in the Integrated Meta Data Base: 1804.