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Foreign investors piled into provincial bonds in record numbers in January, according to new data from Statistics Canada.

The latest data on international securities transactions showed a net outflow of $2.3 billion in January, as foreign investors added just $1.3 billion worth of Canadian securities during the month and Canadian investors bought $3.5 billion worth of foreign securities.

While foreign investment was at its lowest level in six months, purchases of provincial bonds hit a record, although that was largely offset by foreign investors selling federal debt.

“Foreign investors added a record $10.3 billion of provincial government bonds to their portfolios in January, led by primary market activities,” StatsCan reported, noting that Canadian provinces issued $8.7 billion worth of debt on international markets, mainly in U.S.-dollar denominated bonds.

“This outsized interest builds on what had already been a pretty healthy (if chunky) foreign appetite for Canadian provincial debt,” said National Bank Financial Inc. (NBF) in a report, noting that the past 12 months have seen foreign investors add a record $32.5 billion of provincial debt.

“Provincial issuers were considerably less active in international markets in February, while this month (March) tends to be littered with provincial budgets (and related issuing blackouts). Come April, however, it will be ‘game on’ in terms of international bond supply, as Canada’s provinces will be kicking off a brand-new fiscal year with hefty gross borrowing requirements,” NBF said.

“When it comes to [provincial] bonds, where’s there’s demand there will be supply, and sustaining/capitalizing on evident foreign investor interest would seem like a very important debt management strategy to us,” the NBF report continued.

At the same time as foreign investors piled into provincial bonds, their holdings of Canadian federal debt dropped by $10.9 billion, according to StatsCan. This followed a year that saw foreign investors add $75.5 billion worth of federal debt securities.

StatsCan said that the decline in foreign holdings of federal securities “was mainly attributable to net retirements of treasury bills.”

Foreign investors also reduced their holdings of corporate debt securities by $5.9 billion in January, but this was offset by equity purchases.

For Canadian investors, the data showed a divestment from U.S. securities and strong buying of non-U.S. securities in January.

StatsCan reported that Canadian investors added $7.1 billion worth of non-U.S. stocks in the month, which was the highest level in more than a year.

Canadians also sold $2.8 billion worth of U.S. stocks. That’s the “first divestment since March 2020 when global stocks markets posted substantial losses in the context of the Covid-19 pandemic,” StatsCan noted.

Canadian investors also reduced their holdings of foreign debt securities by $774 million in January, StatsCan reported.