Event-Driven Analysis

The Rate Turn

The Fed hiked on September 16 and markets began pricing a possible Bank of Canada hike. What a shift from cuts to possible hikes means for floating-rate private credit, MICs, real-estate valuations and refinancing.

Published Oct 21, 2026Covers Sep 20267 min readAlts Insider

Opening

On September 16, 2026, the US Federal Reserve raised its target range by 25 basis points to 3.75–4.00%. The vote was unanimous, 12–0, and it was the Fed's first hike in more than three years. The next day, markets were pricing the Bank of Canada's October 28 decision as a "coin flip," narrowly favouring a hike (BNN Bloomberg/CP).

The Bank of Canada has not raised rates; it held at 2.25% on September 2, its seventh consecutive hold. But the question in Canadian markets has changed from when the next cut comes to whether a hike is coming, and bond yields and fixed mortgage rates have moved with it. This piece sets out what changed, how to read the signals without over-reading them, and what the turn means for the private-market exposures most sensitive to rates. It is not a forecast, and it is not investment advice.

What Happened

The Fed moved first. On July 29 the Fed held at 3.50–3.75%, with three members dissenting in favour of a hike and the statement saying inflation "remains elevated," partly on energy supply shocks. On September 16 it moved (federalreserve.gov).

The Bank of Canada changed its language, not its rate. Its July 15 Monetary Policy Report expected CPI to ease to about 2.5% in the second half of 2026 and reach 2% in early 2027, using the oil futures curve as of July 9. Brent futures, which settled at $78.02 on July 8, were at $104.82 on September 17 and $107.35 on September 28 (Wikipedia oil chronology; Al Jazeera). The Bank's tone moved in three steps:

  • July 29 deliberations: "the longer oil prices remain elevated, the bigger the risk that their inflationary effects broaden."
  • September 2 statement: "Upside risks to the Bank's inflation forecast have increased," citing "limited progress in reopening the Strait of Hormuz." The Bank also noted that financial conditions had tightened, and kept its line that it is "prepared to adjust monetary policy as needed."
  • September 16 deliberations: energy spillover "could require a monetary policy response to prevent broad-based inflation from setting in" (Bank of Canada).

In Halifax on September 21, Governor Macklem said that with crude near US$100 inflation edges up and persistence risk has risen; coverage reported no explicit rate guidance (The Hub; CTV; we did not review the speech text).

Bond yields repriced. The two-year Government of Canada yield, the maturity most sensitive to expected policy rates, rose from 2.86% on July 14 to 3.11% on September 2 and 3.35% on September 11. It reached 3.40% on September 23. The ten-year yield rose from 3.57% to 3.99% on September 29 (Bank of Canada Valet). A jump of about 15 basis points on September 10–11 has no cause identified in the coverage we reviewed.

Fixed mortgage rates followed. Lenders raised fixed rates by 5–20 basis points around August 17, when the five-year Government of Canada yield reached 3.313% (Canadian Mortgage Trends). Further increases at the large banks were reported in September, though we could not confirm which lenders moved or by how much. In its August data, released September 15, CREA reported national sales down 6.9% year-over-year and the MLS Home Price Index down 3.0%. "What has changed is the broader economic environment," CREA's Cathcart said (CREA).

Forecasters disagree. After the Fed's move, RBC and Desjardins still expected the Bank of Canada to hold through 2026 and to hike in the first quarter of 2027. Capital Economics called October "a close call" (BNN Bloomberg/CP).

Why It Matters

First, read the inflation data the way the Bank does. August headline CPI was 3.0%, with gasoline up 22.8% year-over-year. Excluding gasoline it was 2.4%, and the Bank's preferred core measures, CPI-trim at 1.9% and CPI-median at 2.0%, sat at or below target (Statistics Canada via Bank of Canada Valet; InvestingLive). The case for a hike does not rest on core inflation being high now. It rests on the risk that a long energy shock pushes it higher. "Headline inflation is 3%, so rates must rise" misreads the argument. So does "core inflation is below 2%, so rates cannot rise."

Second, a market-implied probability is not a forecast and not guidance. A "coin flip" is a price set by traders, and it can move sharply on one data release. The Bank's own language is conditional. Commentary that treats a hike as settled is relying on something other than the Bank.

Third, the channels into private markets differ.

  • Floating-rate private credit. Loans priced as a spread over a base rate reset as the base rate moves. Lenders and fund investors collect more income, and borrowers pay more interest. The same mechanism that can lift a fund's distributions can also reduce borrowers' ability to pay. We found no third-quarter private-credit default data, so we draw no conclusion about defaults. In the US, Blackstone's BCRED received an estimated US$4.3 billion of Q3 redemption requests and kept its 5% quarterly cap for a third quarter (CRE Daily).
  • Mortgage investment corporations. MICs typically lend short-term, so their loans reprice and mature faster than most real-estate debt. That works in the lender's favour only if borrowers can refinance or repay. The borrower base was already under pressure: Q2 consumer insolvencies were 37,523, the highest quarterly total since 2009 (CAIRP). In August, Trez Capital announced a temporary suspension of redemptions at five of its open-ended funds, four mortgage trusts and a real estate fund trust rather than MICs, after suspensions at all five in August 2025 and at four of them in February 2026 (Trez Capital, August 17).
  • Real-estate valuations. A property's value depends partly on the yield investors demand from it, and that yield is anchored in part to government bond yields. We found no third-quarter cap-rate survey. The latest reading we have, Avison Young's Q2 figure of 3.90% for Toronto high-density multifamily, is a different measure from a different date than the 3.99% ten-year yield of September 29, so the two are not a precise spread. The comparison still shows why rising bond yields press on the valuations used in private real-estate reporting. Avenue Living Core Trust, a Canadian real-estate trust, extended a redemption delay in place since March 2026 (Avenue Living, September 24).
  • Refinancing. Private real-estate, private-credit and MIC exposures were broadly underwritten for an easing or on-hold rate path. Where debt matures into today's higher five-year yields, the refinancing assumption needs to be re-run.

What to Do

None of what follows is investment advice. It is a set of questions for reading rate sensitivity in a private holding.

Ask what rate path the underwriting assumed. For any loan book or levered real-estate holding, ask whether the base case assumed falling, flat or rising rates, and when that case was last updated.

Ask how distributions and coverage respond to rates. For floating-rate credit, ask how much of the portfolio is floating, whether rate floors or caps apply, and what borrower interest coverage looks like at today's base rates rather than at origination. Higher income and higher default risk come from the same move.

Ask for the maturity schedule. For MICs and real-estate funds, ask what share of loans or property-level debt matures in the next 12 to 24 months, and what the refinancing assumption is.

Ask how valuations are set, and when they were last changed. Ask what cap rates or discount rates were used in the most recent valuation, who set them, and whether they have moved since bond yields rose. A value that has not changed while the ten-year yield rose 42 basis points from mid-July to late September deserves a question.

Re-read the redemption terms. Notice periods, caps and suspension provisions matter most when rates are rising and investors start reassessing.

Mark the calendar rather than predicting it. The September Labour Force Survey (October 9), September CPI (October 19) and the Bank of Canada decision and Monetary Policy Report (October 28) will each update the probabilities.

Closing

Rate cycles rarely turn on a single announcement. This one ran through oil, a Fed hike, three steps of Bank of Canada language and a bond market that repriced before the central bank acted. October 28 may confirm or reverse what markets are pricing. The useful work for a private-market investor is reading, not predicting: core as well as headline inflation, what a probability measures, and which assumptions in a portfolio — loan pricing, valuation inputs, refinancing schedules — were built for a falling-rate world.