Tags: US Investors Flock to Canadas ‘Yankee’ Bonds

US Investors Flock to Canada's ‘Yankee’ Bonds

By    |   Friday, 10 February 2012 12:02 PM

In flaunting itself as a safe haven, Canada has a clear advantage over the United States — it's triple-A-rating. And the recent sale of “Yankee” bonds proves that even U.S. investors are ready to flock to the nation's debt.

Earlier this week, $3 billion worth of five year Yankee bonds — the first U.S.-dollar denominated offering by Canada since 2009 — was gobbled up by central banks and fund managers, pushing the country's borrowing costs to record lows, The Wall Street Journal reported.

Offers to purchase the latest bonds outstripped the number of bonds available by a factor of at least three to one, according to a Canadian government official, the Journal reported.

Royal Bank of Canada, was a lead manager in the bond sale. Managing director of RBC Capital Markets, Jigme Shingsar, reported only one problem — not having enough bonds, the Journal reported.

Americans are showing a growing appetite for Canadian debt.

Smart Money says data show that through October, investors bought $7 billion of the country's sovereign bonds and government-backed debt, up 12 percent from the start of last year.

Investing in Canada can be attractive for a number of reasons. Some investors have requirements for top rated debt and the pool of options is shrinking. But, in addition to its credit rating, Canada has low debt levels, a government that has expressed a commitment to keeping it that way, and a banking system with a positive reputation.

Still, Smart Money outlines another issue — the bonds may not be a great fit for investors looking for higher yields, analysts say.

At an average of 2 percent, yields on 10 year Canadian bonds are in line with Treasurys. Increased popularity has pushed yields down and is likely to continue doing so as access and interest grows, analysts warn Smart Money.

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