DEBT FINANCING. Foreigners poured $11.8B into Canada in July

Foreign interest in Canadian government debt soared in July as investors took refuge from debt crises in both the U.S. and Europe, data released by Statistics Canada Friday show.
Non-resident investors bought $11.8 billion in Canadian securities, mainly in federal treasury bills.
July was marked by a bitter debate in Congress over raising the U.S. debt ceiling, a row which threatened to push the government into default.
And, in Europe, there were rising fears about sovereign debt repayment that resulted in agreement on a $147 billion Cdn second bailout of Greece by the European Union and the International Monetary Fund on July 21.
“You had growing fears on both sides of the Atlantic and investors were looking to park some money short term for a little while and one of those parking places was Government of Canada securities,” BMO senior economist Michael Gregory told CBC News.
Another reason why inflows jumped sharply was that the previous month saw a net outflow for the first time in 2 ½ years.
Many Canadian debt securities mature in June, so repayment of bonds and the payout of the final interest payments show up as an outflow because any re-investment by foreign investors doesn’t show up until later.
Foreign buyers acquired $7.3 billion in Canadian money market debt, led by federal treasury bills, and added $2.0 billion in bonds and $2.5 billion in Canadian shares.
Foreign buyers have purchased $12.7 billion in Canadian money market securities since April.
The downgrade of the U.S. credit rating on Aug. 5 and renewed concerned about Europe’s debt crisis led investors to flee to U.S. Treasuries in search of securities that could be readily turned into cash.
“It is quite possible that some of that money that flowed into Canada by the end of August may have been flowing back into the U.S. Treasury market,” said Gregory, “but we’ll just have to wait and see."
July's foreign inflows helped push the loonie up in July, with the Canadian currency peaking at $1.06 US on July 26. Since then, it has retreated to the 1.02 level.
"The fact that the dollar has drifted a little weaker than it was in July through the months of August and September does suggest that maybe some of that money started to flow out of Canada," Gregory said.
The Statistics Canada report also showed Canadians increased their holdings of foreign shares by $2.8 billion, although that was the lowest increase in three months. Most of that was in U.S. companies.
Canadians continued for a fifth month to divest their foreign bonds but at a slower pace, selling $1.7 billion, much of that mid- to long-term US government debt.
Canadians have sold $12.1 billion in foreign debt in the period from March, when U.S. long-term interest rates have fallen by nearly half a percentage point.
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