The Memo by Howard Marks
Gimme Credit
Mar 6, 2025
Howard Marks dives into the intriguing dynamics of credit spreads, stressing that today's spreads should be evaluated on their ability to offset potential credit losses. He argues that, despite concerns about narrowing spreads, high-yield bonds offer robust long-term returns. The conversation shifts to the complexities of bond investments and the advantages of private credit as a viable option. Finally, Marks highlights the declining appeal of stocks versus bonds, suggesting that careful allocation towards credit investments may provide better opportunities in the current market.
29:29
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Quick takeaways
- Howard Marks highlights that current credit spreads must be evaluated against potential credit losses rather than historical norms for informed investing.
- The rising interest in private credit reflects a shift towards seeking higher yields, yet it carries risks that merit careful consideration against public credit markets.
Deep dives
The Current Landscape of Credit Investment
There has been a significant shift in the focus on credit investments, especially high-yield bonds, as interest rates increased in 2022. The returns from high-yield bonds have demonstrated impressive gains, with the ICE BofA U.S. High Yield Bond Index showing an 8.2% return in 2022 followed by a 13.5% return in 2023. This performance highlights the evolving investment landscape where investors are not only looking for immediate yields but also seeking value in credit markets as concerns about recession have lessened. The changing attitudes toward risk have influenced demand, leading to bond price appreciation and shifting yield spreads in the market.
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