Monday Market Minute | Apr 13, 2020

CERB payments begin flowing — fiscal stimulus becomes the backstop for private market portfolios

What Moved

The Canada Emergency Response Benefit began distributing payments in the first week of April, with over 5.6 million applications processed by mid-month — a staggering number for a program launched in weeks. CEWS approvals accelerated, keeping millions of Canadians on payroll even as businesses remained shuttered. The combined fiscal response exceeded $200 billion in direct spending and liquidity support. Mortgage deferral rates continued to climb, reaching approximately 15% of all Canadian mortgages. However, the income floor provided by CERB reduced the probability that deferrals would convert to actual defaults.

Why It Matters

The speed and scale of the fiscal response was the single most important variable for private credit and MIC investors. CERB effectively transformed a potential solvency crisis into a managed liquidity event. Borrowers who might have defaulted could instead defer payments while maintaining household income. For private credit portfolios, the fiscal backstop reduced tail risk — the worst-case scenario of cascading defaults became materially less likely.

Signal to Watch

Monitor StatsCan employment data for April. The magnitude of job losses would indicate how long CERB would need to remain in place to prevent credit deterioration.

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