Monday Market Minute | Jan 2, 2023
Markets opened 2023 expecting one or two more BoC hikes before a pause, with private credit positioned as the prime beneficiary of peak rates.
What Moved
Canadian markets opened the new year with the Bank of Canada's overnight rate sitting at 4.25% following seven consecutive hikes in 2022. Bond yields reflected broad consensus that one or two more increases remained before a pause. The TSX closed 2022 down 8.7%, outperforming the S&P 500's 19% decline, largely on energy sector strength.
Why It Matters
For private markets investors, the rate environment entering 2023 represented a generational opportunity in credit. Private lending portfolios were originating at yields not seen since 2007, while floating-rate structures meant existing books were already repricing higher. PE deal multiples, meanwhile, had compressed meaningfully — creating a buyer's market for patient capital.
Signal to Watch
The BoC's January 25 decision would set the tone for the entire year. A 25bps hike with dovish guidance would signal the peak was near, potentially triggering a rush of deal activity from sidelined PE sponsors.