Monday Market Minute | Feb 27, 2023
Canadian MICs posted elevated Q4 2022 distributions as floating-rate mortgage portfolios fully repriced to peak Bank of Canada rates.
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.