Canadian Investors Buy $9.2 Billion in U.S. Treasuries Amid Bond Selloff

In April, despite the significant bond selloff, Canadian investors continued to purchase U.S. Treasuries, demonstrating a robust demand for American debt. This trend occurred amidst heightened tensions due to U.S. President Donald Trump’s tariff threats, which had led to widespread boycotts of American products and a reduction in cross-border travel. The turmoil in fixed-income markets, however, did not deter Canadian investors, who acquired a net $9.2 billion of U.S. government bonds in April, marking the largest monthly increase since November 2023.

However, the value of Canada’s overall holdings in U.S. debt decreased by approximately $58 billion during the same month. This decline is attributed to the massive bond selloff in April, which forced Trump to reconsider his reciprocal tariffs. The Federal Reserve’s decision to maintain interest rates, unlike other central banks that have been more aggressive in cutting rates, has contributed to elevated long-term yields. This situation has created a gap where the U.S. 10-year Treasury yield stood at 4.38% while Canada’s was at 3.30%.

Higher interest rates in the U.S. have made Treasuries an attractive investment for Canadians and other foreign investors, provided they can effectively hedge against the risk of a weakening U.S. dollar. At the end of January, Canada’s private and public sectors held a combined $351 billion in Treasury securities, which surged to $426 billion by the end of March before falling to $368 billion in April. This volatility highlights Canada’s significant exposure to long-dated Treasury notes and bonds, which are more sensitive to market fluctuations compared to short-term Treasury bills.

The behavior of foreign investors, who account for roughly 30% of the U.S. Treasury market, is closely monitored as the Trump administration pushes for significant shifts in global trade and international finance. The U.S. benefits from borrowing at favorable rates due to the dollar’s status as the world’s reserve currency and the confidence that America will always meet its financial obligations. However, if foreign buyers lose interest in U.S. Treasuries, the Treasury may need to offer higher yields to attract buyers, potentially increasing interest rates for mortgages, small-business loans, and other types of borrowing.

Foreign investors held just over $9 trillion worth of Treasuries at the end of April, a slight decrease from the record set in March. The decline in the dollar’s value this year has been more pronounced than any offloading of Treasuries, indicating that changes in the allocation of Treasuries happen more gradually. The Treasury data from April showed that foreign private investors were net sellers of long-term U.S. debt, while government institutions like central banks and sovereign wealth funds were net buyers. However, more recent data suggests that this trend may have reversed, with holdings by these official entities declining by $48 billion since late March, indicating potential cracks in demand from these investors.

Despite the tensions and market volatility, it appears that foreign investors, including Canadians, are not yet dumping U.S. debt. The continued demand for U.S. Treasuries, even amidst political and economic uncertainties, underscores the enduring appeal of American debt as a safe haven investment. The situation highlights the complex interplay between interest rates, currency fluctuations, and geopolitical factors in shaping global investment trends.