Wheat from the Chaff

Their woes are our gain

The current economic problems in Europe and elsewhere have become, at least for the time being, a moment of opportunity for Canada. Canada's relatively stable financial sector, low debt ratios and healthy consumer demand are attracting a great deal of attention from international investors. As a result, Canadian government bonds do not cost as much to repay, and our overall borrowing costs are therefore reduced.

... “The rest of the world loves Canada and thinks it’s a safe place to invest, and May was a month of panic, generally speaking, of deteriorating European prospects, and of flight to safety,” Eric Lascelles, a top strategist at TD Securities in Toronto, said in an interview.

“Risk-aversion ultimately resulted in extra demand for bonds backed by a strong fiscal position, credible central bank and healthy banking sector.”

The surging foreign demand means Canadian federal and provincial governments issuing debt can pay less to the investors buying it when the securities mature, a dynamic that is also helped by the rather limited amount of Canadian debt for sale.

While both Canada and the U.S. are running large deficits, Canada’s is substantially smaller even on a per-capita basis, less than 4 per cent as a share of gross domestic product, compared with almost 11 per cent in the U.S.

According to the debt-management strategy Ottawa released earlier this year with the budget, the Finance Department will sell $95-billion of bonds in the current fiscal year, less than the $102-billion in the previous year.

“The more appetite there is, the easier it is to issue bonds, and the less the Department of Finance needs to fret over the deficits that are being run right now,” Mr. Lascelles said....

Foreigners’ total net purchase of Canadian securities for the first five months of the year was $53.9-billion, slightly more than the $52.1-billion bought by overseas investors from January through May of 2009.

From The Globe and Mail: http://www.theglobeandmail.com/globe-investor/foreign-investors-eye-canada-as-haven/article1644569/