Monday Market Minute | Jun 09, 2025

Private credit spreads hold firm — yield premium defies rate compression

What Moved

Despite cumulative BoC rate cuts, private credit spreads remained stubbornly wide. Mid-market Canadian private credit funds reported average all-in yields of 9.5-11.0%, with spreads of 550-750bps over the base rate. The spread durability reflected two dynamics: reduced bank competition in the mid-market (as banks focused on investment-grade corporates) and elevated risk premia demanded by lenders navigating trade uncertainty. New fund launches continued to attract capital, with several managers closing above their target raise.

Why It Matters

The persistence of wide spreads was the defining story for private credit investors in 2025. In a world where BoC cuts had compressed public bond yields below 3.5%, private credit delivered three to four times that return with senior-secured collateral. The risk premium was arguably generous given actual loss experience — Canadian private credit default rates remained below 2%, well within historical norms. For accredited investors seeking income, the asset class offered a rare combination of yield, security, and inflation-adjusted returns.

Signal to Watch

Whether spread compression would follow rate cuts with a lag — as it eventually did in prior cycles — or whether structural changes in bank lending behaviour would sustain the private credit yield advantage longer than historical patterns suggested.

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