What Moved
The Bank of Canada held at 5.00% on January 24, maintaining its stance while acknowledging that economic slack was building and inflation was on a downward path. The private markets 2024 outlook brightened considerably when the Bank dropped its explicit reference to the possibility of further hikes — a meaningful signal that the tightening chapter was closed (BoC, Jan 24, 2024).
Canadian CPI for December 2023 came in at 3.4% — a minor uptick from November's 3.1% but still well below the 2022 peaks. Markets expected continued disinflation through the first half of 2024 (StatsCan, Jan 2024).
Housing markets entered the year in a holding pattern. Prices were stable nationally, and sales volumes were subdued but adequate. The market was waiting for rate cuts before the next meaningful move (CREA, Jan 2024).
Private credit started 2024 with strong momentum. MIC managers reported healthy RRSP-season inflows, and origination pipelines were active. The 5.00% rate environment continued to offer attractive yields on new lending. PE deal pipelines were the most robust since 2021, with sponsors eager to deploy accumulated dry powder.
What It Means
January set the stage for what would become the central theme of 2024: the anticipation trade. Markets were positioning for rate cuts before the BoC had made a single one. Bond yields were declining, mortgage rates were easing, and investor sentiment was shifting from defensive to constructive.
For private credit investors, the anticipation of rate cuts was positive for existing portfolios. Lower rates would ease borrower stress, support housing values, and improve refinancing conditions for maturing loans. The MIC sector had survived the peak-rate stress test and was entering 2024 in a fundamentally stronger position — with better underwriting standards, more conservative portfolios, and higher yields.
For PE, the anticipation trade was even more pronounced. Lower cost of capital makes leveraged transactions more attractive, higher multiples on exit become possible as financing conditions improve, and portfolio companies benefit from reduced debt service costs. Sponsors were building deal pipelines with the expectation that financing conditions would improve through 2024.
The risk was that rate cuts would take longer to arrive than the market hoped. If inflation proved sticky, the BoC could hold at 5.00% through the summer — extending the "higher for longer" period and frustrating expectations. The broader context mattered too: Canadian private markets had already survived the peak of the tightening cycle, and the sector's fundamentals — tighter underwriting, healthier governance, and more conservative leverage — suggested that the recovery, when it came, would be built on sturdier ground than the boom that preceded it.
What We're Watching
The timing of the first cut was the dominant question. Markets were pricing in April or June as the most likely starting points.
Spring housing data would indicate whether the anticipation of rate cuts was sufficient to spark activity, or whether actual cuts were needed.
PE deal announcements in Q1 would signal whether sponsors' pipeline optimism was translating into executed transactions.
Closing
January 2024 opened with a sense of anticipation that had been absent since before the tightening cycle. The worst was behind, the direction was clear, and the opportunity set was attractive. For those evaluating Canadian alternative investments, the question was no longer about survival — it was about positioning for recovery.
For the full quarterly analysis, see Q1 2024: The Anticipation Trade.
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