Americans snap up Canadian bonds

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Donald Trump has publicly proclaimed that the United States ‘doesn’t need anything’ Canada has, but Americans can’t seem to get enough of this “export.”

According to Statistics Canada’s international securities transaction data out Monday, foreign investors increased their exposure to Canadian bonds by $33.5 billion in January, with Americans buying $20 billion of that.

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“This despite swirling tariff threats and a cloudier-than-normal outlook for the economy and many of the nation’s largest bond issuers,” said National Bank of Canada economists Warren Lovely and Ethan Currie.

January’s net foreign buying was the second highest on record, exceeded only by the bond bonanza in that darkest of times, April 2020.

“Despite much geopolitical wrangling, U.S.-based investors continue to express confidence in Canada,” said the economists.

That is especially important now.

If Canada’s economy is thrown into recession by Trump’s tariffs — or even by the threat of tariffs — governments on all levels will face greater funding needs and deeper deficits as they extend aid to struggling businesses and citizens.

Provinces have begun tabling their budgets, and the trend of weaker budget balances and higher borrowing needs is already emerging. National Bank now expects provincial debt issuance for the year to climb as high, if not higher, than the record set at the beginning of the pandemic.

“The ready/steady appetite for Canadian term debt issued south of the border (or other foreign markets) allows our provinces and corporates to divert a non-trivial share of supply away from the home market (insulating domestic spreads in the process),” said the economists.

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As far as our credit rating goes, we’re better off than our southern neighbour. Since 2002, Canada as a sovereign issuer has had the highest credit ratings available from S&P Global Ratings and Moody’s Ratings, and the second highest rating from Fitch Ratings, according to Bloomberg. The United States has the second-highest rating at S&P and Fitch and the highest at Moody’s.

Even with the extra spending brought on by a tariff-induced downturn, Canada’s debt-to-gross domestic product ratio would be among the lowest in the G-7, Dominique Lapointe, senior director in macro strategy at Manulife Investment Management, told Bloomberg.

“In other words, there is still fiscal space to absorb a slowdown, and investors should not be wary of Canada’s credit worthiness at the moment,” he said.

Never before has Canada had a greater exposure to foreign bond investors than it has now. After “exporting” almost $200 billion of term debt to foreign investors in 2024, 40 per cent of the national bond stock is now held outside the country, said National Bank.

“Canada is … beholden to foreign investors (many in the U.S.) for vital debt financing lifelines,” said Lovely and Currie.

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“As we’ve warned, this is one export we can’t take for granted.”

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Home sales dropped almost 10 per cent in February from the month before, the biggest decline since March 2022 and the third contraction in a row.

That puts home sales down 17 per cent in the past three month, wiping out the recovery at the end of 2024 sparked by Bank of Canada rate cuts, said Daren King, National Bank of Canada economist.

“The moment tariffs were first announced on Jan. 20, a gap opened between home sales recorded this year and last,” said Shaun Cathcart, Canadian Real Estate Association (CREA)’s senior economist said Monday.

• U.S. Senator Peter Welch will meet Vermont and Canadian business leaders for a roundtable at the U.S.-Canada border to discuss President Trump’s trade war.
• New Brunswick government tables 2025-2026 budget
• Today’s Data: Canada inflation data, United States housing starts and building permits, import and export price index, industrial production, capacity utilization
• Earnings: Alimentation Couche-Tard Inc

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Many seniors own homes, cottages or rental properties that will make up part of their estate when they die, but there may be tax, probate and other implications that range from minimal to significant. Jason Heath walks you through the tax and other pitfalls you might encounter when you inherit real estate.

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McLister on mortgages

Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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