Tuesday, January 17, 2012

Canada a safe haven for bond investors


 Jan 17, 2012 – 12:26 PM ET Last Updated: Jan 17, 2012 3:27 PM ET
Andy Clark/Reuters
Andy Clark/Reuters
Canada has long been considered a safe haven for immigrants and it is now one for bond investors with the European financial crisis worsening. The month of November revealed a massive increase of foreign inflows in Canadian securities, jumping to $15-billion from just $3.9-billion in October.
Most of the inflows came via bonds – both corporate and government of Canada – primarily from U.S. investors who bought $5.3-billion worth, according to Statistics Canada. Money-market instruments and equities also attracted more foreign investment in November. Japanese investors, on the other hand, reduced their holdings for a third consecutive month.
Nomura economist Charles-St Arnaud says strong inflows into Canadian markets over the past few months coincides with heightened global uncertainty, while inflows into Canada tend to be weak when risk sentiment is more positive. He thinks November confirms this trend.
Since many eurozone countries were downgraded last week, the economist believes Canada, which has an AAA rating, will continue to attract strong foreign inflows.
“This continues to point to some safe-haven flows going to Canada,” he says.
But National Bank strategist Krishen Rangasamy warns foreign investors that there is a limit to net inflows into federal government bonds. She says Ottawa plans to cap supply as part of the plan to balance the budget by 2015-16.
“With the limited supply of Canada’s being an issue, foreigners wishing to increase their Canadian exposure may increasingly turn to bonds from other Canadian issuers,” she says, suggesting provincial or corporate bonds as alternatives.
Source: The Financial Post.