Why foreign investors are buying Canadian government bonds in record numbers

Foreign investors bought a record amount of Canadian government bonds in April, helping keep borrowing costs lower as Prime Minister Mark Carney prepares to fund billions of dollars in new spending plans.

According to the latest government data, foreign investors purchased C$27.7 billion worth of federal bonds during the month, the highest monthly total on record.

Their share of outstanding Government of Canada bonds also reached an all-time high of 43 per cent.

The increased demand comes as Carney has pledged more than C$280 billion in spending over the next five years on infrastructure, housing, defence and productivity projects, with much of the funding expected to come through the bond market.

“I regard the broader buyer base as a positive development, which has helped the Canadian government fund relatively large bond programs without unduly raising borrowing costs,” Andrew Kelvin, head of Canadian and global rates strategy at TD Securities, told Reuters.

Analysts told Reuters that Canada's strong credit ratings and stable financial outlook continue to attract overseas investors, while some are also shifting away from US Treasury bonds.

However, experts warned that greater reliance on foreign investors could increase market volatility if overseas buyers suddenly withdraw.

“Strong foreign appetite for Canadian government debt represents a vote of confidence in the stability of the country’s political institutions and its overall economic trajectory,” Karl Schamotta, chief market strategist at Corpay, told Reuters.