This chapter explores the complex landscape of the bond market, focusing on the evolution of the triple B bubble in the aftermath of COVID-19. It examines the competitive nature of creditors in a low-covenant environment and the implications for investment risks and opportunities, particularly for Registered Investment Advisors. The discussion highlights the role of active management versus passive investment products and the shifting dynamics of credit quality and yields.
This week, the Fed cut benchmark rates by 50 basis points. Lower financing costs should be a relief for companies that need to borrow in the form of bonds or loans. But, the weird thing about the previous few years of high rates and high inflation is how much corporate credit has defied expectations. While defaults increased slightly, there wasn’t a huge wave of bankruptcies. And most companies haven’t really had trouble finding financing, with a smorgasbord of options available to them — including from the booming private credit market. So what happens now that the Fed is lowering rates? In this episode, we speak with Danielle Poli, co-portfolio manager of Oaktree’s Diversified Income Fund and a founding member of the firm’s investment committee, about how she sees the next leg of the credit cycle unfolding, and how she decides between a multitude of potential investments in the space.
Related Links:
The Black Hole of Private Credit That’s Swallowing the Economy
The Hottest Way for Banks to Get Risk Off Their Balance Sheets
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