UPDATE 1-Foreigners dump Canadian bonds in December

Tue Feb 18, 2014 8:40am EST
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* First foreign divestment in Canadian securities since June

* Foreigners reduce holdings by C$4.28 bln in December

* Foreigners reduce bond holdings by C$10.91 bln

* Foreigners buy Canadian stocks, money market paper

* Investment in Canadian securities halved in 2013

OTTAWA, Feb 18 (Reuters) - Foreigners reduced their holdings of Canadian securities for the first time in six months in December, by a net C$4.28 billion ($3.89 billion), as they dumped C$10.91 billion worth of Canadian bonds, Statistics Canada reported on Tuesday.

A good chunk of the divestment in bonds, a net C$4.81 billion, was due to retirement of bonds. December, a big retirement month, registered the biggest reduction in bond holdings since a record C$19.06 billion in June, another important bond retirement month.

Most of the reduction in bonds, C$7.98 billion worth, was in government securities. The year 2013 as a whole showed the largest divestment in government bonds, at C$10.27 billion, since the C$19.15 billion registered in 2003.

With global economic prospects improving, investors appeared to want to shift from low-interest debt to higher yields elsewhere. Canada in general has also lost some of its star status as other countries pull out of the recession; this is reflected in the halving of foreign investment in Canadian securities to C$42.79 billion in 2013 from C$83.21 billion in 2012.

December's divestment in Canadian bonds was partly offset by purchases of Canadian money market paper and stocks.