Monday Market Minute | Jan 29, 2024
Private credit managers accelerate origination to lock in peak yields before the BoC cutting cycle begins. A golden window narrows.
What Moved
Canadian private credit managers accelerated origination activity in late January, looking to lock in floating-rate yields at or near cycle highs. With the overnight rate at 5.00%, senior secured private loans were pricing at 10–13% all-in yields — levels not seen since the early 2000s. Fund managers with dry powder moved to deploy before rate cuts compressed returns.
Why It Matters
Private credit had been the standout alternative asset class of the hiking cycle, delivering equity-like returns with senior-secured protection. The approaching easing cycle meant these yields would compress — but existing loans locked at peak rates would continue generating elevated income through maturity. Vintage mattered enormously.
Signal to Watch
Watch for early signs of credit deterioration. The lag between rate hikes and borrower distress typically ran 12–18 months. Q1 default data from Canadian private lenders would reveal whether the yield premium was compensating for rising risk.