Monday Market Minute | Jun 6, 2022

BoC delivers third consecutive hike to 1.50% and signals the pace will not slow

What Moved

The Bank of Canada raised the overnight rate by 50 basis points to 1.50% on June 1 — the third hike in four months and the second consecutive jumbo increase. Governor Macklem's accompanying statement was strikingly hawkish, warning that rates might need to rise "toward the top end or above" the BoC's neutral range of 2-3%. The Canadian dollar strengthened on the decision but remained below parity as the U.S. Federal Reserve matched the hawkish tone.

Why It Matters

At 1.50%, the overnight rate had risen six-fold from its January starting point, and the BoC was signalling significantly more to come. For private markets, each 50-basis-point increment represented a meaningful shift in the opportunity set. Private credit yields were now delivering returns that would have required equity-like risk just 18 months earlier. The flip side: every rate increase tightened conditions for leveraged borrowers and compressed the margin of safety in real estate lending.

Signal to Watch

The July decision — swap markets had begun pricing in the possibility of a 75-basis-point or even 100-basis-point move, which would be historic.

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