Monday Market Minute | Jan 2, 2023

Markets open 2023 braced for the final stretch of tightening

What Moved

Canadian markets opened the new year with the Bank of Canada's overnight rate sitting at 4.25% following seven consecutive hikes in 2022. Bond yields reflected broad consensus that one or two more increases remained before a pause. The TSX closed 2022 down 8.7%, outperforming the S&P 500's 19% decline, largely on energy sector strength.

Why It Matters

For private markets investors, the rate environment entering 2023 represented a generational opportunity in credit. Private lending portfolios were originating at yields not seen since 2007, while floating-rate structures meant existing books were already repricing higher. PE deal multiples, meanwhile, had compressed meaningfully — creating a buyer's market for patient capital.

Signal to Watch

The BoC's January 25 decision would set the tone for the entire year. A 25bps hike with dovish guidance would signal the peak was near, potentially triggering a rush of deal activity from sidelined PE sponsors.

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