Planning

It seems foreign investors can’t get enough of Canadian equities and bonds.

In a Feb. 16 report, National Bank senior economist Krishen Rangasamy says the latest Statistics Canada data shows “net foreign purchases amounted to a record CAD$188.5 billion in 2017, as both bonds ($148.6 billion) and equities ($55.6 billion) hit individual all-time highs.”

Foreign investors in the fixed income space  favoured corporate bonds, accounting for roughly two-thirds of bond purchases, he says.

Over the same period, the least-loved securities included money market instruments, which hit a new foreign investor divestment record of -$15.7 billion due to “a combination of shrinking supply of T-Bills (courtesy of increased buyback by the Bank of Canada) and reduced demand […],” says Rangasamy.

Read: Mutual fund sales drop in December

In other bond news…

As equity markets dropped during the week of Feb. 5, corporate bonds experienced “comparative calm,” Moody’s reported last week.

Read: Equity dip didn’t faze corporate credit

And that calm has continued, the agency says in its weekly outlook report released Thursday. John Lonski, Moody’s Analytics chief economist, writes, “Expectations of a declining high-yield default rate into early 2019 have anchored corporate yield spreads.”

By January 2019, says Lonski, Moody’s Default Research Group predicts the U.S.’s high-yield default rate may drop to 2%, down from January 2018’s 3.2%.

One factor to watch is whether “a sickly equity market could diminish systemic liquidity by enough to drive the default rate higher,” he says. He’s also looking at whether companies are boosting share prices through buybacks or special dividends, and at ratings downgrades in relation to those.

Also read:

Is the worst of stock market turmoil over?

Here’s how portfolio managers are investing now

Fixes for fixed income as rates rise

Originally published on Advisor.ca
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