What Moved
The Bank of Canada had no scheduled decision in November, holding at 5.00%. Private credit stabilization was now firmly established, and the narrative was shifting decisively toward easing. Bond yields declined through the month as markets priced in rate cuts beginning in early-to-mid 2024. The Canada 5-year yield fell notably, pulling fixed mortgage rates lower for the first time in months.
Canadian CPI for October came in at 3.1%, continuing the gradual descent and approaching the top of the BoC's 1-3% target range for the first time since early 2021 (StatsCan, Nov 2023).
Housing data for November showed modest improvement in activity. Lower bond yields — even before any BoC cut — were beginning to ease fixed-rate mortgage costs, which could support a spring 2024 recovery. Prices remained stable nationally (CREA, Nov 2023).
Private credit markets were in a strong position. Existing portfolios had weathered the peak-rate environment. New originations were proceeding at attractive terms. And the prospect of rate cuts ahead was constructive for borrower health and collateral values.
Several Canadian PE fund managers were in market for new vintages, and institutional appetite for Canadian alternatives remained robust.
What It Means
The shift in market expectations toward 2024 rate cuts was the most important development for Canadian private markets since the July peak. Even before the BoC actually cut rates, the expectation of cuts was affecting the market: bond yields were declining, mortgage rates were easing, and investor confidence was improving.
For private credit investors, the prospect of rate cuts created a favourable dynamic. Existing portfolios originated at high yields would continue to generate strong returns. Borrower stress would ease as rates declined, improving portfolio performance. And the eventual decline in base rates wouldn't immediately eliminate the yield advantage — private credit spreads would adjust gradually.
The 2023 vintage of private credit — originated at peak rates, conservative LTVs, and corrected property values — was positioned to be one of the strongest in years. As rates declined, these loans would benefit from improving borrower conditions while maintaining their high coupon rates until maturity or refinancing.
For PE, the rate-cut expectations were catalytic. Lower borrowing costs improve deal economics, and the anticipation of easier conditions gave sponsors confidence to commit to new investments. Across Canadian alternative investments, the PE pipeline heading into 2024 was the strongest since 2021.
What We're Watching
The December BoC decision would set the official tone for 2024. A hold at 5.00% was expected, but the Bank's forward guidance would be closely parsed for timing clues on cuts.
Year-end fundraising data would indicate institutional sentiment toward Canadian alternatives heading into 2024.
The housing spring market was already being discussed — with rate cuts expected, spring 2024 could bring a meaningful recovery in transaction volumes and potentially prices.
The declining yield on Government of Canada bonds was also worth tracking for its effect on the competitive positioning of private credit. As public fixed-income yields fell in anticipation of rate cuts, the spread premium offered by private credit — already at historically attractive levels — was widening further. This dynamic was likely to drive increased capital flows into private lending strategies, as investors who had been content with 5% GIC yields faced declining returns and sought alternatives that maintained yield in a declining-rate environment.
Closing
November's message: the turn was coming. After 18 months of tightening and adjustment, the Canadian alternative investment landscape was positioned for a new phase — one defined by declining rates, recovering activity, and the rewards of patience through a difficult cycle.
For the full quarterly analysis, see Q4 2023: Waiting for the Turn.
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