The Credit Edge by Bloomberg Intelligence Goldman Tells Credit Investors to Buy Cheap Hedges
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Feb 13, 2025 Lotfi Karoui, Chief Credit Strategist at Goldman Sachs, shares his expertise on navigating the current credit market landscape. He emphasizes the unique opportunity for credit investors to hedge against losses due to low costs. Despite expensive valuations, he remains optimistic about corporate debt, citing strong demand paired with limited supply. The discussion also highlights remarkable value in mortgage-backed securities and potential opportunities in the European bond market, addressing risks linked to defaults and M&A activity.
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Hedging in Uncertain Times
- Don't get complacent with seemingly resilient markets.
- Consider hedging against tail risks, as the cost of hedging is currently low.
Private Credit's True Value
- Private credit's appeal isn't just about excess premiums.
- It consistently delivers better risk-adjusted returns (Sharpe ratios) than public credit.
Maturity Wall Concerns
- The high-yield maturity wall isn't as concerning at the aggregate level.
- The marginal cost of refinancing has compressed significantly, making it more manageable.