Investor Inflow Least Since 2008 on Canadian Bond Divestment

Foreign investors cut their holdings of Canadian securities in December, ending the slowest year of inflows since 2008, as government bonds lost appeal.

Divestments totaled C$4.28 billion ($3.91 billion) in December, including C$10.9 billion of bonds, Statistics Canada said today from Ottawa. Foreign investors acquired a net C$42.8 billion of Canadian assets last year, down from C$83.2 billion in 2012 and the least since C$31.9 billion in 2008.

Canada lost some of its appeal as an investment destination last year, in part due to the economy’s inability to keep up with a quickening U.S. recovery, helping to fuel a 7.9 percent drop in the Canadian dollar over the past 12 months.

“The factors that had once heightened the appeal of Canadian debt in years past -- superior fiscal fundamentals, an economic outperformance, and a cautiously hawkish central bank - - have all faded,” said David Tulk, chief Canada macro strategist at TD Securities in Toronto. “Reduced foreign interest in Canadian securities is one of the factors behind our forecast for a weaker Canadian dollar through the middle of the year.”

Canada’s dollar was little changed today, trading for C$1.0953 per U.S. dollar at 11:36 a.m. in Toronto.

The loonie, as the currency is sometimes known, has risen 1.6 percent in February versus its U.S. counterpart. It’s still the worst performer this year among Group of 10 countries, down 3.0 percent.

Corporate Debt

Investors have also put more money into higher-yielding corporate debt and equities as concerns about the global recovery faded. While declining by C$2.94 billion in December, inflows into corporate bonds totaled C$36.7 billion in 2013, up from C$22.5 billion in 2012.

The extra yield investors demand to own the debt of Canadian corporations rather than the federal government has narrowed to 114 basis points from as high as 128 basis points in September, with yields dropping to 2.90 percent from as high as 3.44 percent over that time.

Foreign investors divested a total C$10.3 billion in Canadian government bonds last year, following a net purchase of C$46.5 billion in 2012. It was the largest net sale since 2003.

Money market instruments swung to a net divestment of C$2.52 billion last year from net investment of C$13.3 billion in 2012, as holdings of federal government Treasury bills fell by C$10.0 billion.

Purchases of equities rose to C$18.9 billion in 2013 from C$968 million, the statistics agency said.

Canadians bought C$3.71 billion of foreign securities in December, ending the year with C$27.2 billion in total purchases. That’s down from C$35.1 billion in 2012.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net; David Scanlan at dscanlan@bloomberg.net

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