Market Insights

Markets ended the third quarter with renewed optimism despite political and economic uncertainty. 

Both the Bank of Canada (“BoC”) and the Federal Reserve (“Fed”) cut rates in September. The market continues to price one additional BoC cut this year, in line with our expectations for a 2.15% terminal rate. Productivity continues to decline, and the Canadian economy has not been nearly as resilient as our southern neighbours.

South of the border, Fed Chair Powell has made clear that the Fed’s focus has shifted, now less focused on inflation and more attentive to labour market concerns. The US labour market seems to be at an impasse – workers aren’t getting hired or voluntarily changing jobs. At this point, markets are pricing “insurance cuts” of roughly 50 basis points (bps) in 2025. 

The US economy continues to defy expectations, demonstrating remarkable resilience as it maintains strong growth even amid a prolonged government shutdown and missing data releases. Despite short-term headwinds from the shutdown, we see limited risk to growth as fiscal stimulus, the AI race, and corporate M&A remain supportive. 

The 2026 Fed path, however, is more uncertain as these same forces could reaccelerate growth and complicate policy decisions. We will continue to monitor macro risks, especially as the Fed navigates its 2% inflation target and mounting political pressures. Meanwhile, credit spreads have stayed firm, supported by strong fund flows and a growing belief that the US can achieve a soft landing despite mixed signals elsewhere. 

Coming into the final quarter of the year, markets lie in wait for clearer policy direction. A universal experience at this point.

September was a busy month for supply, with fund flows of $10.6bn into investment grade and $1.7bn into high yield. There are new borrowers coming into the market every day, and we’re saying no to many deals as our credit research team remains laser-focused on the most attractive opportunities. 

As an active credit manager, one of the ways we generate alpha is through participating in primary market issuance. New bond issues often come with attractive concessions, and they help reprice secondary markets, which also creates opportunities for capturing value. 

Ford’s new $800mm 3-year CAD-denominated bond is an excellent example of this. We received a sizeable allocation of $100mm due to our entrenched relationships with the Canadian banks. The new issue tightened (became more expensive) by 12bps in the second market and then tightened another 15bps in the following two weeks.

Our size and reputation as an active institutional participant continue to provide an advantage in this environment, enabling us to engage in reverse inquiries, secure better allocations to new issues, and capture alpha from idiosyncratic opportunities and unique catalysts that are often inaccessible to smaller players.

Renewed M&A activity has also provided fertile ground for opportunity. Leveraged buy-out (LBO) financing is making a comeback, most notably with video game maker Electronic Arts going private in a record-setting $55mm LBO. 

Also of note, hyper-scalers, which have been the ‘obsession du jour’ for some time in the equity market and are now entering the bond market. Some forecasts expect a staggering $1.5tr of financing would be needed to fund the construction of AI data centres in the next couple of years. Much of this is expected to be funded by cash reserves, but a growing portion is being debt-financed. The most recent example of this being the upcoming landmark $29bn issuance by Meta to fund its AI infrastructure. 

Interestingly, if these tech companies chose to finance these projects primarily through bonds, hyper-scaling would represent a larger concentration of the credit market than global financial institutions, marking a massive transformation of public markets. This is a trend we are monitoring closely as we believe these companies will need to grow into the ambitious growth expectations.

Despite headline risks and broad market moves, opportunities persist beneath the surface, especially with single names, as the market environment shifts so rapidly. We believe leveraging our credit research team’s expertise and fundamental analysis, and layering active management, allows us to be tactical and opportunistic. 

Looking ahead, we remain focused on staying up in quality, maintaining liquidity, and being nimble to act quickly when volatility creates opportunity. With central banks poised to ease and economic resilience intact, we believe our active and risk-aware approach leaves us well-positioned for the next phase of the cycle. 

As always, if you have questions about our market outlook or our strategies, please do not hesitate to reach out to our team.