Monday Market Minute | Jul 31, 2023
With the BoC at 5.00%, Canadian private credit managers reported the strongest origination yields in over a decade, attracting unprecedented institutional and HNW capital flows.
What Moved
With the BoC rate at 5.00%, Canadian private credit managers were originating deals at all-in yields that would have been unimaginable two years earlier. Senior secured first-mortgage positions were generating 10–12%, mezzanine and subordinated tranches reached 14–16%, and construction financing commanded even higher premiums. Capital flows into the sector accelerated, with both institutional and HNW investors recognizing that the risk-return proposition was historically compelling. Several Canadian private credit managers launched new funds specifically to capture the peak-rate opportunity.
Why It Matters
The private credit moment was not just about yield — it was about structural advantage. Banks had tightened lending, pushing quality borrowers into private channels. Floating-rate structures meant portfolios repriced instantly to the peak rate. Short loan durations provided natural reinvestment opportunities. And the secured nature of most Canadian private lending — first mortgages on real property — offered downside protection that unsecured public credit could not match. The asset class was delivering on every dimension simultaneously.
Signal to Watch
Whether the capital flowing into private credit would compress spreads and erode the very opportunity that was attracting it — the classic late-cycle dynamic of too much money chasing too few quality deals.