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Forex Flash: CAD - Foreigners are in search of yields - Nomura

FXstreet.com (Barcelona) - Nomura economist Charles St-Arnaud notes that non-residents increased their holdings of Canadian securities by C$13.3bn in December, following a decline of C$1.9bn in December.

He sees that most of the foreign inflows were in bonds (C$11.2bn) and equity (C$1.7bn), while there were some very small outflows from money-market instruments (-C$0.2bn). Further, he notes that most of the inflows into bonds were into corporate bonds (C$9.8bn), Inflows into government bonds were C$2.1bn mainly provincial bonds (C$1.8bn). The small outflows from money-market instruments hide the fact that there were inflows into corporate short-term paper (C$3.2bn), but outflows from government paper (C$3.5bn). The selling of government paper is likely a reversal of the “safe haven‟ flow seen in December, ahead of the fiscal cliff. On a regional basis, there were inflows into the
Canadian market from the US (C$7.8bn), the UK(C$2.7bn) and Japan (C$1.7bn) and EM countries (C$0.7bn).

Overall, he feels that the report shows that foreigners still have some appetite for Canadian assets. However, the details of the assets they bought shows that they are looking to maximize the yield on their assets by preferring corporate bonds and paper and provincial bonds over federal government bonds and paper. He finishes by writing, “It is also interesting to note, that the Canadian dollar depreciated slightly despite the strong inflows into Canadian assets. This suggests that other drivers, like the price of oil or the repricing of rates expectations may have been more important.”

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