Global turmoil boosts Canada’s bond sales

[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.

http://www.theglobeandmail.com/repor...76/?cmpid=rss1

[Cowperson]

Basically, people are paying governments to hold their money, worried the financial system may not be around.

There's a pretty profound disconnect, however, between indicators like the VIX and TED Spread, which aren't really showing any signs of panic, and the trend to pay governments to hold money. The stock market is also disconnecting from this type of rush to safe havens.

France had a record low five year auction of .86 of one percent while Spain's borrowing costs on two year debt are soaring.

The flip side of this is that while we all think this is wonderful, Government of Canada bonds, USA Treasuries, etc and other safe havens are in extremely dangerous territory when this all eventually normalizes.

I think it was in about 1993 or 1995 when a 30 year Govt. of Canada bond dropped 25% in value as interest rates went from hot to cold within a year.

Its like there are two worlds out there. It's been going on for a while but someone is going to be right and someone is going to be wrong.

Cowperson