What Moved
The Bank of Canada had no scheduled decision in May, holding at 4.50%. The Bank of Canada pause was now in its fourth month, and markets were adjusting to the prospect of rates staying elevated for an extended period rather than rising further.
Canadian CPI for April came in at 4.4%, essentially flat with the previous month and suggesting that the disinflation process was stalling. Core measures remained sticky, complicating the Bank's path to easing (StatsCan, May 2023).
Housing markets continued to stabilize. Spring activity was moderately healthy, with sales recovering from cycle lows and prices flat to modestly positive in major markets. The worst of the correction appeared over, though a return to 2021-2022 pricing levels was not expected (CREA, May 2023).
Private credit conditions were steady. MIC managers reported normalizing operations — distributions were being maintained by well-managed funds, new origination at improved terms was proceeding, and the acute stress of 2022 was fading into portfolio management.
PE deal announcements were picking up, with particular activity in healthcare services and technology infrastructure.
What It Means
The "patience premium" was becoming the defining concept for those holding Canadian alternative investments in 2023. With rates high but stable, the environment rewarded investors who could maintain their positions and wait for the cycle to turn — rather than panicking and selling into distress.
For private credit, patience meant allowing existing loan portfolios to work through to resolution rather than forcing liquidations at unfavorable prices. It meant maintaining allocations to managers who were performing well, even if headline sentiment was negative. And it meant recognizing that the current high-yield origination environment was a feature, not a bug — the best risk-adjusted returns in private credit were being underwritten in that environment.
For PE, patience meant accepting that exit timelines might be extended. The IPO window was narrow and M&A valuations were compressed relative to 2021 peaks. But portfolio companies generating strong cash flows were building value that would be realized when the cycle turned.
The stalling disinflation was a concern. If CPI remained stuck above 4%, the BoC might need to resume hiking — a scenario that would add further stress to borrowers and delay the recovery. Markets were watching inflation data with particular intensity.
What We're Watching
The June BoC decision would be the next rate checkpoint. With disinflation stalling, there was increasing speculation that the conditional pause might end with a surprise hike.
Summer housing data would show whether the spring stabilization was sustainable or whether elevated rates would push prices lower again.
US debt ceiling negotiations were creating uncertainty in global markets — resolution was expected but the process was adding volatility.
Infrastructure remained a steady performer throughout the pause period. Canadian infrastructure funds continued to deploy capital into energy transition projects, transportation assets, and digital infrastructure, benefiting from long-duration cash flows that were largely insulated from the rate cycle. For investors seeking portfolio stability amid the uncertainty around the Bank's next move, infrastructure allocations were delivering consistent performance with built-in inflation protection.
Closing
May reinforced the 2023 theme: patience over panic. The rate environment was challenging but stable. Private markets were adjusting but functioning. And the opportunity set for new investments was the most attractive in years. For those with the capital and the time horizon, 2023 was shaping up as a vintage year.
For the full quarterly analysis, see Q2 2023: The Stubborn Pause.
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