Monday Market Minute | Mar 28, 2022

Bond market posts worst quarter in decades as yield curve inverts — private credit's advantage widens

What Moved

Canadian government bonds were on track for their worst quarterly performance since at least the 1990s. The FTSE Canada Universe Bond Index was down over 7% year-to-date, a devastating loss for an asset class investors held for stability. The Canada 2-year/10-year yield curve briefly inverted — historically a recession signal — as short-term rates repriced aggressively for the BoC's hiking path while long-term yields reflected growing recession risk.

Why It Matters

The bond rout accelerated institutional and HNW investor migration toward private credit. Unlike public bonds, floating-rate private loans benefited from rising rates rather than suffering from them. The yield premium over government bonds had widened to levels that attracted capital from traditional fixed-income allocations. For private markets investors already positioned in floating-rate vehicles, Q1 demonstrated exactly the structural advantage they had been promised.

Signal to Watch

Public pension fund asset allocation disclosures — a meaningful shift from public bonds to private credit would signal a structural reallocation, not just a tactical trade.

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