Monday Market Minute | Dec 11, 2023

BoC holds for the fifth consecutive meeting as the tightening cycle is declared over

What Moved

The Bank of Canada held its overnight rate at 5.00% at the December 6 decision, its fifth consecutive hold. The statement struck the most dovish tone of the cycle, dropping language about willingness to hike further and instead emphasizing that "monetary policy is working." November CPI had declined to 3.1%, the lowest reading in over two years. Bond markets rallied aggressively, with the 5-year GoC yield falling below 3.50% — down over 100bps from its October peak. Swap markets priced in the first cut for April 2024 with high conviction.

Why It Matters

The declaration that the tightening cycle was over marked a pivotal moment for Canadian private markets. For private credit, it meant the clock was ticking on peak yields — every month of delay before the first cut was a month of premium income. For housing, the rate ceiling was established, and the path of least resistance was lower — a setup for recovery. For PE, the prospect of lower financing costs in 2024 could reopen the exit market and restart deal activity. The positioning decisions made in December would set the trajectory for 2024 performance.

Signal to Watch

The pace of rate cuts in 2024 — whether the BoC would move gradually (25bps per quarter) or aggressively (50bps moves) — would determine the speed at which private markets repriced.

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