[Azure]

Foreign money is flooding into Canada like never before, helping to drive the yield on Canada’s benchmark 10-year bond to a record low and sending rates plunging across the board.

Canada is among a small group of countries offering investors a sweet mix – perceived risk-free assets with some return – which could push government borrowing costs lower still.

Canada has long been a favoured country, but interest is growing again amid the global turmoil.

That’s something of a mixed blessing, because while it drives down Ottawa’s borrowing costs, it also threatens to juice the Canadian dollar even more at the same time that growth in key export markets is sputtering.

The yield on federal government 10-year bonds fell Monday to a record low of just under 1.6 per cent. This came on the same day that Statistics Canada reported record purchases of Canadian securities by foreign investors in May. Those foreign players picked up a record $26.1-billion of Canadian securities two months ago, $16.7-billion of which were government bonds.

Best part.

“Instead of seeing Canada as a quick ‘hide-and-seek,’ they’re willing to take that position as a safe investment for their money,” he said, adding that federal bond yields this low could allow the Harper government to wipe out its deficit more quickly than anticipated or, if necessary, to slow the pace of spending restraint to support the economy.

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