Monday Market Minute | Feb 27, 2023

MIC sector reports strong Q4 yields as peak rates flow through to investor returns

What Moved

Several prominent Canadian mortgage investment corporations reported Q4 2022 results showing annualized net yields in the 8–10% range, up materially from the 6–7% typical of the pre-hike environment. The rate transmission mechanism was straightforward: most MIC portfolios held floating-rate or short-duration mortgages that had repriced in step with the BoC's 425bps of hikes. Delinquency rates remained contained, though arrears had ticked up modestly in construction-focused portfolios.

Why It Matters

MICs occupy a unique niche in Canadian private markets — they offer monthly income, mortgage-secured lending, and direct rate sensitivity. At peak rates, MICs were delivering equity-like returns with senior-secured credit risk. However, the sustainability of these yields depended on two variables: borrower creditworthiness under stress, and the duration of the BoC pause. If rates stayed elevated through 2023, the MIC sector would likely post its best performance year in over a decade.

Signal to Watch

Spring mortgage renewal volumes in the private lending space — a wave of borrowers unable to qualify at banks would drive MIC origination pipelines.

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