The Memo by Howard Marks Gimme Credit
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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.
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Public vs. Private Credit
- Investors often overlook public credit for private credit.
- Howard Marks sees no reason to bypass public credit.
Low-Return World
- From 2009-2021, bond yields were low, creating an "investment challenge."
- Private credit offered higher yields (around 6%), sometimes levered up to 9%.
Yield Spreads and Risk
- Risky borrowers offer higher yields to compensate for their risk.
- If the increased yield offsets potential losses, the risk can be worthwhile.