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Foreign Flows and Their Effects on Government of Canada Yields

Author

Listed:
  • Bruno Feunou
  • Jean-Sébastien Fontaine
  • James Kyeong
  • Jesus Sierra

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.

Suggested Citation

  • Bruno Feunou & Jean-Sébastien Fontaine & James Kyeong & Jesus Sierra, 2015. "Foreign Flows and Their Effects on Government of Canada Yields," Staff Analytical Notes 15-1, Bank of Canada.
  • Handle: RePEc:bca:bocsan:15-1
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    File URL: https://www.bankofcanada.ca/wp-content/uploads/2015/11/san2015-1-.pdf
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    References listed on IDEAS

    as
    1. Joseph E. Gagnon & Matthew Raskin & Julie Remache & Brian P. Sack, 2011. "Large-scale asset purchases by the Federal Reserve: did they work?," Economic Policy Review, Federal Reserve Bank of New York, vol. 17(May), pages 41-59.
    2. Lukasz Pomorski & Francisco Rivadeneyra & Eric Wolfe, 2014. "The Canadian Dollar as a Reserve Currency," Bank of Canada Review, Bank of Canada, vol. 2014(Spring), pages 1-11.
    3. Bruno Feunou & Jean-Sébastien Fontaine, 2014. "Non-Markov Gaussian Term Structure Models: The Case of Inflation," Review of Finance, European Finance Association, vol. 18(5), pages 1953-2001.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International financial markets; International topics; Transmission of monetary policy;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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