Analysis: Foreign Investors Cut CAD Bond Exposure In June>

--Foreign Investment in Canadian Securities -C$0.9B

--Canadian Investment in Foreign Securities +C$13.2B

By Yali N'Diaye

     OTTAWA (MNI) - Foreign investors cut their portfolio holdings of 

Canadian securities by C$0.9 billion in June, marking the first monthly 

divestment since July 2015, with a focus on government bonds, Statistics 

Canada reported Wednesday. 

     Meanwhile, Canadian investment in foreign securities increased 

C$13.2 billion in June, with a focus on foreign equities. 

     As a result, there was a net outflow of funds from the economy of 

C$14.1 billion in June. Still, large purchases of Canadian bonds in 

April and May contributed to an overall net inflow of funds of C$31.6 

billion in the second quarter. 

     Expectations of a July Bank of Canada interest rate hike built up 

quickly following a June 12 speech by Senior Deputy Governor Carolyn 

Wilkins amid an ongoing string of strong economic data. Canadian 

short-term rates rose by 13 basis points and long-term rates by 20 basis 

points over the month. 

     The Canadian dollar also appreciated over the month by nearly three 

US cents. U.S. rates increased 10 basis points at the front end of the 

curve, while long-term rates declined by 11 basis points. 

     Foreign investors' divestment focused on debt, with a total of 

C$2.6 billion, led by a C$2.6 billion divestment in bonds, including 

C$12.3 billion in Canadian dollar-denominated instruments. 

     Within government bonds, sales on the secondary market as well as 

retirements led to a C$9.8 billion divestment in federal government 

bonds, the largest since June 2014. 

     Instead, foreign investors favored private corporate bonds, where 

they increased exposure by a further C$7.5 billion, mainly new bonds 

placed in foreign markets. 

     Foreign investors also bought C$1.7 billion Canadian equities in 

June, with mergers and acquisitions translating into the issuance of new 

Canadian shares to non-resident investors. 

     Canadian investors also favored equities in their portfolios of 

foreign securities, boosting their exposure by C$15.3 billion, split 

between U.S. shares (C$7.3 billion) and non-US equities (C$8.0 billion). 

     Instead, Canadian investors reduced exposure to foreign debt by 

C$2.1 billion due to a C$3.9 billion divestment in money market 

instruments that was only partly offset by bond purchases (C$1.8 

billion). The latter were focused on U.S. Treasuries (C$1.3 billion). 

--MNI Ottawa Bureau; email: yali.ndiaye@marketnews.com 

[TOPICS: MACDS$,M$C$$$]