OTTAWA -- Foreign investors continued to pile into Canadian securities in January, with the greatest bulk of their purchases concentrated in federal government bonds, Statistics Canada reported Thursday.

It was the thirteenth straight month that foreign investors increased their Canadian holdings. Purchases reached a record in 2009, when foreign investors bought $109-billion in Canadian securities.

Foreign investment in Canadian securities reached $11.8-billion in January 2010, surpassing market expectations tracked by Bloomberg for a figure of $8-billion.

BMO deputy chief economist Douglas Porter, described the move as “big.”

“We’ve heard all the reasons why the Canadian dollar is taking dead aim at parity in recent days. Today, we saw some of the mechanics behind how it’s getting there. Foreign investors poured another $11.8-billion into Canadian securities in January -- the third consecutive monthly inflow of that magnitude, a level which may have come around only about every three or four years until very recently.

“This brings the 12-month running total net inflow to a towering $111-billion, by far and away a record. To put this in perspective, $111-billion is more than 7% of Canadian GDP, it’s nearly three times the size of last year’s current account deficit ($41-billion), and it’s larger than the budget deficits of Ottawa and all the ten provinces combined.

“With foreign investment on its own enough to easily fund all of Canada’s government deficits, it’s no wonder that a) the loonie is on a tear, and b) long-term government bond yields remain modest and below their U.S. counterparts,” Mr. Porter said.

Foreign investors bought $10-billion in Canadian bonds, Statistics Canada said. Federal government bonds accounted for two thirds of those purchases including new issues abroad and secondary market purchases.

Non-residents also added $2.5-billion in money-market instruments, while disposing of $649-million in Canadian stocks in January, a month during which stock prices fell 5.5%, Statistics Canada said.

Canadians, meanwhile, sold $5.8-billion in foreign securities in January, the largest reduction since December 2008. Their divestments were concentrated in $5.6-billion in sales of foreign bonds.

Canwest News Service