Foreign Money Floods Canada's Bond Market Amid Looming Debt Crisis

Canada's foreign investment surge is not necessarily a vote of confidence in the country's economy. According to Statistics Canada data, global investment boomed in May, with non-resident portfolio investment reaching $256 billion over the past year.

This has led some outlets to frame the surge as renewed confidence in Canada. However, BMO chief economist Douglas Porter argues that the composition of this investment tells a different story.

The majority of foreign investment is going into bonds, mostly public debt, with a large share issued in foreign currency. Even more concerning is who's buying these bonds and how they're financing their purchases. Canada has been aggressively tapping hedge funds, which are using leverage to buy government debt.