Monday Market Minute | Jan 7, 2019

BoC holds at 1.75% as markets recalibrate after December sell-off

What Moved

Canadian equity and fixed income markets opened 2019 in recovery mode after December's sharp sell-off rattled investor confidence globally. The Bank of Canada entered the year with its overnight rate at 1.75%, following five hikes across 2017-2018. Market consensus shifted quickly — futures pricing moved from expecting further hikes to pricing in a prolonged pause.

Why It Matters

For private markets investors, the rate pause signal changed the calculus on leveraged strategies. Private credit yields remained attractive relative to public fixed income, and mortgage investment corporations stood to benefit from stable borrowing costs. The pause also reduced refinancing risk for PE-backed portfolio companies carrying floating-rate debt.

Signal to Watch

The January BoC Business Outlook Survey would reveal whether corporate investment intentions had softened alongside the equity market correction — a leading indicator for private equity deal flow in the first half of the year.

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