Foreign Flows and Their Effects on Government of Canada Yields

Bruno Feunou, Jean-Sebastien Fontaine, James Kyeong and Jesus Sierra Jimenez

Staff Analytical Notes from Bank of Canada

Abstract: Foreign investment flows into Government of Canada (GoC) bonds have surged since the financial crisis. Our empirical analysis suggests that foreign flows of $150 billion lowered the 10-year GoC bond yield by 100 basis points between 2009 and 2012. In addition, foreign outflows largely accounted for the 70-basis-point rise in the 10-year yield around the U.S. “taper tantrum” in mid-2013. Our analysis suggests that foreign investment flows mostly reduced bond risk premiums rather than lowering expectations of future short-term interest rates.

Keywords: International financial markets; International topics; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: F32 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocsan:15-1

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