Monday Market Minute | Jan 30, 2023

BoC delivers the hike, declares a conditional pause — private credit locks in peak yields

What Moved

The Bank of Canada raised its overnight rate 25bps to 4.50% on January 25 and announced it would hold rates steady "if economic developments evolve broadly in line" with projections. This marked the end of the most aggressive tightening cycle in the Bank's modern history — 425bps in under a year. Bond markets rallied on the news, with the 5-year GoC yield dropping 15bps in two sessions.

Why It Matters

For private credit managers, the conditional pause meant peak base rates were likely locked in for months to come. Floating-rate portfolios had repriced dramatically higher over 2022 and would now hold at those elevated yields. Private lenders were originating senior secured deals at 10–12% all-in yields — levels that historically belonged to mezzanine or subordinated tranches. The risk-return calculus in private credit had arguably never been more favourable.

Signal to Watch

Whether banks would follow the pause by loosening commercial lending standards — or continue tightening, which would push even more borrowers toward private credit alternatives.

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