Foreign investors absorbed 60% of all newly issued federal debt in fiscal year 2024-25, according to a new report by National Bank’s lovely Warren Lovely.
That’s a record amount – worth 91 billion CAD and bonds purchased by non-residents in 12 months, enough to raise serious questions about who really supports Ottawa’s lending needs.
“Non-residents did not vote in the Canadian election; they did not occupy a seat in parliament either. But foreign investors have enough opportunities to express their views on the direction the government chose,” Lovely noted. “If not satisfied, they may stop buying and/or demanding relatively fat yields and/or steep curves to keep participating.”
Relying on offshore buyers
In recent years, the share of federal debt held by non-residents has increased dramatically. As of March, foreign investors owned C$512 billion of Canadian government debt, accounting for about 36% of the total outstanding. This is well above 23% of the historical average and far exceeds the all-time high at the end of 2024.
This increase in foreign participation is net positive in many ways, which increases liquidity in the domestic bond market and helps Ottawa fund its growing deficit without overwhelming domestic investors. Buyers span a wide range of areas – from central banks and sovereign wealth funds to insurance companies, pension funds and fast currency hedge funds.
But, as the Bank of Canada points out in its latest financial stability report, there are risks. Many of these investors are using leverage, and some may retreat quickly if the situation changes or risk tolerance changes.
Sudden pause, then signs of life
Interestingly, despite record paces in foreign purchases throughout the fiscal year, the last quarter told a different story.
From January to March 2025, non-residents did not add one dollar of new federal debt to their portfolio. This has allowed domestic investors to absorb all new offerings in Ottawa, the most they have received in a quarter since the mid-pandemic era borrowed orgy.
The timing was not ideal, as those months saw a series of U.S. tariff threats, Canadian wastefulness, and political uncertainty ahead of the April federal election. “It may be that some non-residents retreated at the beginning of the calendar year, and hopefully this photo will be clear,” Lovely wrote.
However, there is some evidence that the callback may be temporary. The National Bank noted that new data showed that non-residents caused about 30% of Canadian government bonds and T-Bill transactions in April, and even paid targets for domestic banking and institutional clients. They are also successful bidders in recent bond auctions, with about a quarter of new supply since the start of the new fiscal year.
Why this is important to borrowers and the market
At a time when Ottawa is expected to increase its borrowing (no budget, but campaign commitments point to a larger deficit), the federal government will continue to rely heavily on demand for its bonds.
If foreign appetite fades or becomes more selective, it may force bond yields to attract enough buyers. This, in turn, will increase the government’s borrowing costs and could impact everything from fixed mortgage rates to a broader financial situation.
As adorable, “Ottawa must prevent budget complacency.” Canada may still look solid compared to some peers (for example, the U.S. just saw a downgrade), but global investors have options and expectations.
Whether they are in the room or not, foreign investors may end up having more influence on Ottawa’s fiscal future than the opposition bench.
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Last modified: May 28, 2025
