With government spending bolstering the fragile Canadian economy, government debt issuance has ramped up too. In the third quarter, foreign investors resumed the task of absorbing that growing debt, National Bank Financial Inc. (NBF) reports.
In a new report, NBF economists examine recent national balance sheet data from Statistics Canada, which highlights the return of foreign investors to Canadian government debt markets.
“Canadian governments are doing some heavy lifting these days, directly supporting a still-vulnerable economy and essentially taking up slack left by cautious private sector participants,” it noted.
As a result, government budget deficits are growing, and borrowing needs are rising too, it said.
“Collectively, Canadian governments (federal, provincial, local) borrowed roughly $50 billion in Q3,” the report said — adding that government borrowing amounts to more than 6% of GDP on an annualized basis.
This abundance of new government debt is being supported by foreign investors once again, it also noted.
“Last year, [foreign investors] hoovered up [federal government] debt at an unprecedented pace, taking down a vast majority of net new issues,” NBF said.
While this appetite cooled in the first half of 2025, leaving domestic investors to absorb the growing supply of sovereign debt, the data shows that foreign investors were “thankfully” back in Q3, taking up a greater share of the new government debt issuance, NBF said.
Through the first three quarters of the year, foreign investors have now added almost $30 billion in federal government debt, it said — absorbing about 25% of the net new supply. That still leaves the Canadian banks as the largest buyers of government debt.
“There’s no shortage of government debt to [go] round — now and into the future — so keeping all investor types attached/engaged would seem wise,” the report said.