Monday Market Minute | Dec 25, 2023
A forward-looking assessment of how anticipated 2024 rate cuts would reshape Canadian private markets across credit, real estate, private equity, and venture capital.
What Moved
As 2023 closed, market consensus coalesced around a clear narrative for 2024: the BoC would begin cutting rates in Q2, delivering 75–100bps of reductions by year-end. Bond markets had already priced this scenario aggressively, with the 5-year GoC yield falling over 100bps from its October peak. The Canadian dollar traded near $0.75 USD, reflecting a balanced view of growth prospects. The TSX finished the year with modest gains, led by financials and technology, while energy lagged on moderating oil prices.
Why It Matters
The rate pivot would reorganize the Canadian private markets hierarchy. Private credit, 2023's champion, would see yields compress as base rates declined — the best of the golden era was likely past. Housing would emerge as the primary beneficiary, as lower rates improved affordability, unlocked sidelined demand, and supported development economics. PE and VC activity would recover as financing costs declined and the exit market thawed. The winning 2024 strategy would be to gradually rotate from the rate-beneficiary trades of 2023 toward the rate-cut beneficiary trades of 2024.
Signal to Watch
The timing and pace of the BoC's first cut — an early, decisive move would signal confidence in the inflation trajectory, while hesitation would suggest the Bank remained concerned about a reacceleration.