Canadian data casts doubt on China-U.S. bond ‘conspiracy,’ National Bank says

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInvestorNewsCanadian data casts doubt on China-U.S. bond ‘conspiracy,’ National Bank saysThree analysts say there are more logical explanations for figures that show Canada’s holdings of U.S. debt rising sharply while China’s fallAuthor of the article:A National Bank logo in the financial district in Toronto on July 14, 2026. Photo by Peter Power/Postmedia NewsSome bond-market watchers believe China is disguising the full extent of its ownership of U.S. debt by holding hundreds of billions of dollars of securities through accounts in Canada. That idea is off base, according to research from one major Canadian bank.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThree analysts at National Bank Financial took aim at the China-Canada link in a report this week, saying there are more logical explanations for figures that show Canada’s holdings of U.S. debt rising sharply while China’s fall — including the rapid growth of Canadian financial institutions.This advertisement has not loaded yet, but your article continues below.Official U.S. data suggest that China has cut its holdings of U.S. Treasuries in half over the past decade or so. The theory circulating in the market is that Chinese entities, in fact, are choosing to obscure how much they own by spreading them around through custodians in other nations, including Canada.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try again“Who doesn’t love a good conspiracy theory?” National Bank’s Warren Lovely, Taylor Schleich and Ethan Currie said in their report.If true, it would mean China’s share of U.S. debt isn’t shrinking as rapidly as thought, that Canada’s appetite for it is significantly overstated, and that the latter’s financial system is being used to conceal the ultimate ownership of the world’s most important debt securities.But Canadian data point to a simpler, less exciting explanation, the National Bank analysts said.Combing through Statistics Canada data on financial flows and balance sheet accounts, they note that Canadian entities held foreign bonds worth more than $1.1 trillion as of the second quarter of this year. Most of that is concentrated in several groups: banks, insurers, pension plans, mutual funds, other private funds and social-security plans such as the Canada Pension Plan.This advertisement has not loaded yet, but your article continues below.The value of foreign debt held by Canadian investors has risen by nearly $500 billion over the past five years, Statcan data show.About half of that increase reflects net purchases, the analysts said in the report. The rest came from “revaluation effects,” including currency movements — meaning the increase in Canada’s reported holdings also overstates the amount of new money actually flowing into foreign bonds.Banking growthInvestors have a number of reasons to want to hold more US Treasuries, including higher yields, balance sheet growth and a desire for geographic diversification, according to Lovely, Schleich and Currie.Canadian banks are responsible for the largest portion of the increase in foreign bond holdings in recent years, which the analysts said is “partly the flip side of a growing pool of liabilities” as they attract more foreign-currency deposits.“It would seem a stretch to suggest that Canada’s heavily regulated banks are somehow complicit in masking the true nature of China’s U.S. Treasury holdings,” they wrote.Non-bank financial firms in Canada are another big source of growth in foreign bond holdings, the National Bank analysts calculated. This group, which includes lightly regulated hedge funds, has seen those holdings jump $63 billion in two years.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.It’s not totally clear what’s driving that, but the National Bank analysts noted that such funds are getting bigger and that there’s ample evidence that hedge funds have quickly become larger players in Canada’s government bond market.“For leveraged players, the superior liquidity afforded by Treasuries can enhance the efficiency of relative-value trading strategies,” the National Bank analysts wrote. “This deep-liquidity argument helps explain the growing involvement of foreign hedge funds in Canada’s own sovereign bond market.”Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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