What Moved
November brought the news the world was waiting for, with immediate implications for yield investing in a low-rate environment. Pfizer announced on November 9 that its COVID-19 vaccine was more than 90% effective. Moderna followed with similar results on November 16. Markets surged — the TSX gained roughly 10% for the month, and the "reopening trade" began in earnest. Sectors hammered by the pandemic — travel, energy, financials — led the rally (Reuters, Nov 2020).
The Bank of Canada had no scheduled decision in November, holding at 0.25%. Bond yields ticked up on vaccine optimism, but the Bank's forward guidance remained firmly dovish: emergency rates would persist well into the recovery.
Canadian housing continued to break records. November national sales and prices were up sharply year-over-year, with the combination of zero rates, remote work flexibility, and pent-up demand creating what was now unmistakably a housing boom (CREA, Nov 2020).
In private credit, the vaccine news was immediately positive. Lower economic uncertainty reduced the risk of borrower defaults and supported the collateral values underpinning MIC portfolios. MIC capital inflows accelerated as the improved outlook gave investors more confidence in deploying capital to alternatives.
What It Means
The vaccine breakthroughs resolved the central uncertainty of 2020. The pandemic would end — the timeline was now about distribution logistics, not existential risk. For private market investors, this removed the worst-case tail risk that had lingered since March.
The immediate consequence was a further intensification of yield hunting. With the economy recovering and rates still at zero, the case for private credit became even more compelling. GICs paid 0.5%. Government bonds offered 0.5-1.0%. MICs offered 6-8%. The math was simple, and capital was responding.
MIC assets under management were growing at an accelerating pace. This was rational in aggregate but carried the seeds of future challenges. More capital chasing a finite supply of quality loans would continue to compress yields and could eventually pressure underwriting standards. The managers who maintained discipline in this environment — turning away marginal deals rather than stretching to deploy — would look wise when the cycle turned.
For PE, the vaccine news was catalytic. Sponsors who had been sitting on dry powder now had visibility on the recovery. Deal pipelines were building, and 2021 was shaping up to be a very active year for Canadian PE.
What We're Watching
The pace and logistics of vaccine distribution would shape the 2021 outlook. Canadian distribution was expected to begin in December, with broader availability through the first half of 2021.
Year-end housing data would set the baseline for 2021. If November's pace continued, Canada was heading into a housing boom of historic proportions — with all the opportunities and risks that implies for private lending.
MIC fundraising and origination data for Q4 would indicate how aggressively the sector was growing. Rapid growth warranted attention to underwriting quality.
Closing
November was the month that changed the narrative from survival to opportunity. The vaccine removed the tail risk, markets responded, and capital began flowing toward a post-pandemic future. For Canadian alternative investments, the question was no longer whether the crisis would pass, but what kind of market would emerge on the other side.
For the full quarterly analysis, see Q4 2020: Yield Hunting in a Zero-Rate World.
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