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Foreigners reducing CAD bond holdings

It seems that June (aside from very bad economic data points) also saw foreigners reducing their Canadian bond holdings.  This is being spun as debt "retirement"  It seems that in June more than CAD 6 billion in Canadian bonds were retired --and that foreign investors took this opportunity to invest elsewhere.  First there is no doubt that sovereign rates in Canada are getting insanely low (5 years at less than 2%) so its natural for investors to view Canada (which is closely associated with the U.S.) to view this as a subpar investment.

Foreign portfolio investment in Canadian securities
(Source; StatsCan)

Anyway take what ever view you want is that foreign investors' view of the CAD bond market is that there are better ways of investing money -- also June marked the high point for the CAD so that it may have been seen as a good exit strategy -- come back when the CAD is again in ascendancy!

As for Canadian investing abroad has been mostly in blue-chip shares -- and not fixed income.  The vision may be that the yield on bonds is now lower than the average dividend yield. so may as well take that free ride, since it is perceived as "unsustainable".  This view is based on the past 30 years of data.  Going back to the 1920s it can be shown that there are many episodes where bond yield were lower than dividend rates.


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