October 31, 2025
Commentary
The monthly commentary discusses recent developments across the Ninepoint Diversified Bond, Ninepoint Alternative Credit Opportunities and Ninepoint Credit Income Opportunities Funds.
Macro
As was widely expected, both the Bank of Canada (BoC) and the Federal Reserve (Fed) cut interest rates for a second consecutive meeting. However, the tone was hawkish, with the BoC essentially signalling that they see the current level of interest rates as appropriate (i.e. this could be the end of the easing cycle), while Chair Powell went out of his way to pare back market expectations for another rate cut in December.
Here in Canada, the BoC’s message has been well absorbed by the market, and rate cut expectations are almost zero for the foreseeable future, which should offer some support to the Canadian dollar. In the U.S., inflation remains a particular concern, and so far, the labour market, while weak, hasn’t deteriorated any further, based on the few private data releases we have had access to during the shutdown. Nevertheless, and despite the hawkish messaging from the Fed, the U.S. bond market is still expecting about 100 basis points of rate cuts by the end of 2026 (Figure 1 shows rate cut expectations until the end of 2026).
Some of this dovishness by the market is certainly attributable to the expected change in Fed leadership mid-2026. Although the topics of Fed independence and who will be the next FOMC Chair has gone surprisingly quiet recently. We expect this will come back to the forefront later in December or early 2026. But, for now with inflation still running at 3% and about half of the FOMC clearly signalling their primary concern right now is inflation, we think there is room for disappointment on rate cuts next year. We are therefore adjusting our exposure to U.S. duration accordingly, using options to modulate up or down depending on how far the pendulum has swung in either direction.
Another important development in the U.S. was the announcement of the end of QT (Quantitative Tightening) by the Fed. While the balance sheet remains quite large ($6.6 trillion), conditions in funding and money markets have become tight again. One measure we look at is the difference between the Fed Funds rate and the Secured Overnight Financing Rate (SOFR for short, the replacement for LIBOR) (Figure 2 below). When liquidity is ample, those two benchmarks are very close to each other (as in the period 2020 to 2023 below). But, when the level of reserves becomes scarce due to Quantitative Tightening (as in 2018/2019), then SOFR tends to blow out, as we have seen recently. Less liquidity in the system is usually associated with increased volatility, and this is something all market participants should be mindful of.
In credit markets, particularly in the U.S., we have started to see some signs of strain across a few sectors. In private credit, the back-to-back defaults of Tricolour and First Brands have caught the market’s attention. Several private credit funds had outsized exposure to those issuers, and after years of supercharged growth for the industry, the fear is that we could see more defaults as economic growth hits a soft patch. In our experience, very rapid growth in financial services, whether it is lending or insurance, is usually associated with looser underwriting standards. It should therefore be no surprise that we could see more high-profile defaults. In public credit markets, a higher risk of default in private markets has been reflected in wider credit spreads for business development companies (or BDC). BDC’s have been extensively used by private credit funds to sell participations to retail investors. We are not involved in this part of the market, but will continue to monitor credit conditions there, as it could offer advance notice of deterioration in broader credit conditions.
Another area of concern for credit investors is the sheer scale of the AI CAPEX cycle, and the associated funding needs of those companies. Up until recently, the narrative around AI datacenter expansion was that it was mostly funded by excess cash flow of the large tech companies. However, the investment commitments have become so large that those excess cash flows aren’t enough anymore, and those large, highly rated companies are starting to tap the investment grade bond market in very large sizes. Irrespective of anyone’s views on the eventual return of these investments, all this issuance is creating a tidal wave of supply in the bond market. We expect that the scale and frequency of this issuance will eventually lead to wider credit spreads for those companies and maybe other related credits. Plus, given their extremely high credit ratings and their funding needs, these companies might also be tempted to let their ratings slide a few notches lower, further pressuring spreads wider. We are currently evaluating relative value positions in that sector to take advantage of this developing dynamic.
Individual Fund Discussion
Ninepoint Diversified Bond Fund
October was a good month for the fund, returning 52 basis points (vs 67 basis points for the Canadian index). Our underperformance versus the index stems from our much lower duration (3.2 years vs 7 years). As government bonds rallied into the BoC and Fed rate cuts, we trailed index performance. This is to be expected. However, on a full-year basis, we remain well ahead (4.11% vs 3.70%).
There were no material changes to the portfolio composition in October. Duration remains flat (3.2 years) while the yield-to-maturity remains stable at 4.5%. Our average credit rating is also stable at A-.
NINEPOINT DIVERSIFIED BOND FUND - COMPOUNDED RETURNS¹ AS OF OCTOBER 31, 2025 (SERIES F NPP118) | INCEPTION DATE: AUGUST 5, 2010
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
15YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|---|
Fund |
0.52% |
4.11% |
1.81% |
2.33% |
5.32% |
6.19% |
1.65% |
2.76% |
3.41% |
3.60% |
Ninepoint Alternative Credit Opportunities Fund
October was a good month for the strategy, returning 40 basis points, taking our YTD total; to 4.19% net of fees (F-class). We mostly earned our carry, as a small rally in duration was somewhat offset by slightly wider credit spreads. Duration was flat at 2.4 years. The yield-to-maturity went up to 5.4% (from 5.0%) as we optimized our credit hedges and added a few short-duration hybrids with good yield-to-call. The average credit quality is stable at BBB+. Leverage remains low at 0.5x.
NINEPOINT ALTERNATIVE CREDIT OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF OCTOBER 31, 2025 (SERIES F NPP931) | INCEPTION DATE: APRIL 30, 2021
1M |
YTD |
3M |
6M |
1YR |
3YR |
Inception |
|
|---|---|---|---|---|---|---|---|
Fund |
0.40% |
4.19% |
1.95% |
3.17% |
5.62% |
7.91% |
2.95% |
Ninepoint Credit Income Opportunities Fund
Other than returning 0.33% vs 0.40% (and 4.32% vs 4.19% YTD) for the Ninepoint Alternative Credit Opportunities fund, the discussion for the Credit Income Opportunities fund is essentially the same. These two funds are managed with basically the same strategy.
NINEPOINT CREDIT INCOME OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF OCTOBER 31, 2025 (SERIES F NPP507) | INCEPTION DATE: JULY 1, 2015
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|
Fund |
0.33% |
4.32% |
2.13% |
3.06% |
5.53% |
7.77% |
5.06% |
5.33% |
5.01% |
Conclusion
This is the home stretch before the year-end. Despite the volatile and uncertain environment, it has been a good year for our strategies, generating stable returns through the ups and downs of the market.
Expect our next monthly commentary to discuss our 2026 outlook.
Until next month,
Mark, Etienne & Nick
As always, please feel free to reach out to your product specialist if you have any questions.