Monday Market Minute | Jul 10, 2023
The BoC raised to 5.00% on July 12, marking what would prove to be the peak of the tightening cycle. Private markets entered a new phase of adjustment.
What Moved
The Bank of Canada delivered its second consecutive surprise hike on July 12, raising the overnight rate 25bps to 5.00% — its highest level since 2001. The decision was driven by persistent core inflation and a labour market that refused to cool. Bond yields surged to multi-year highs, with the 5-year GoC touching 4.25%. The Canadian dollar strengthened past $0.76 USD. Governor Macklem's press conference struck a tone of determined hawkishness, though he acknowledged the lagged effects of prior hikes had yet to fully materialize.
Why It Matters
At 5.00%, Canadian private credit achieved its most attractive risk-return profile in at least fifteen years. Floating-rate portfolios were generating all-in yields of 11–13% on senior secured positions — returns historically associated with equity risk, delivered through mortgage-backed credit instruments. For private markets investors, the peak rate represented a crystallization moment: the time to lock in allocations to credit strategies was when rates were at their highest, not after cuts had begun compressing yields.
Signal to Watch
Whether the BoC had truly reached the terminal rate, or whether another hike remained possible in September if inflation data failed to cooperate.