Canadian fixed-income investors increased their participation in international bond markets last year, according to a study.

Over the 12-month period covered by Greenwich Associates in its 2007 Canadian Fixed-Income Investors Study investors expanded their activity in maple bonds as well as in several European fixed-income instruments.

“The movement into foreign bonds is not overwhelming, but it is noticeable,” says Greenwich Associates Toronto-based consultant Lea Hansen. “And it is being driven in large part by Canadian pension funds looking to improve investment performance amid relatively low expected rates of return on domestic fixed-income products.”

The study reveals a particularly large jump in the percentage of Canadian institutions that said they have either bought maple bonds(46% of those surveyed in 2007 versus 33% in 2006)or planned to in the next 12 months(33% versus 25% last year).

The increase was especially pronounced for the most active investors—those with more than $5 billion in annual fixed-income trading volume—where more than half said they used maple bonds in 2007, up from only 38% in 2006.

Some 13% of Canadian fixed-income investors said they used European investment-grade credit bonds in 2007, up from 6% last year—and the rise was even larger for the most active Canadian investors, where usage jumped to 15% from 8%.

Looking 12 months out, some 13% of all Canadian investors said they plan to buy European credit bonds, as did an impressive 21% of the biggest institutions, up from 11% last year.

However, there were definite soft spots in the international picture. Canadian institutions’ purchases of U.S. Treasuries remained flat year-on-year, with fewer saying they expect to use the product over the next 12 months(25% in 2007 versus 30% in 2006).

Virtually all of that decrease was concentrated in the smallest end of the trading market(less than $1 billion in annual trading volume), where only 17% of investors said they bought U.S. Treasuries in 2007, down from 30% in 2006. The most active institutions actually increased their usage(71% versus 65% in 2006).

In other U.S. products, Canadian institutions’ use of investment-grade bonds was flat year-on-year, and down slightly in high yield and ABS. Interest in Asian bonds remained tepid at best.

Maples Are Growing provides an in-depth look at the maple bond market. To read that story, click here.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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