The Credit Edge by Bloomberg Intelligence

Tal Reback, a global investment strategist at KKR, discusses the firm's pursuit of yield in the European and Japanese credit markets. With US debt spreads tightening, she emphasizes the importance of geographic diversification and highlights a potential $1 trillion opportunity in European asset-backed securities. Reback details the allure of private credit, risk management strategies, and market complexities. She also shares insights on AI's impact on credit underwriting and the need for selective, quality positioning in today’s exuberant market.

Brad Rogoff, Global Head of Research at Barclays, shares insights on the potential risks in credit markets driven by an AI funding frenzy. He discusses how increased issuance may lead to vulnerabilities if expectations aren’t met. Rogoff emphasizes sector dynamics, encouraging caution around low-grade bonds while highlighting the importance of quality in portfolios. With a focus on 2026 forecasts, he predicts wider spreads but not an imminent recession, urging investors to remain vigilant amid evolving market conditions.

Mathew Cestar, president of Arini and seasoned credit expert, discusses the rising attraction of European private credit amidst shrinking US returns. He highlights Europe’s 50 basis point premium on loans, driven by the complexity of middle-market, non-sponsor deals. Cestar elaborates on borrowers favoring tailored private solutions over banks, and the unique opportunities in sectors like defense. He also shares insights on managing risks, the importance of regulatory transparency, and the strategic focus on senior middle-market loans for optimal returns.

Vanguard Group, the world’s second-largest money manager, is wary of junk bonds given how expensive they’ve become. “Where the market is today doesn’t leave a lot of room for negative surprises,” Michael Chang, head of high-yield corporate credit at the $11 trillion asset manager, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Matthew Geudtner in the latest Credit Edge podcast. “Spreads are pretty tight, yields are about average — it’s not the best time to be investing in high yield,” Chang says. They also discuss Vanguard’s preference for debt from utilities and consumer staples companies, how to get extra yield from leveraged loans and how to profit from liability-management exercises.See omnystudio.com/listener for privacy information.

Danielle Poli, a portfolio manager at Oaktree Capital Management, shares her insights on the cautionary trends in credit markets. She highlights the alarming lack of discipline as investors rush to fund AI-related ventures, questioning the sustainability of such hype. The discussion also covers strategies for finding strong returns in collateralized loan obligations and real estate debt, as well as concerns about credit cycles and the impact of liability management exchanges. Poli emphasizes a disciplined investment approach amidst growing competition for capital.

Robert Cohen, Director of Global Developed Credit at DoubleLine Capital, provides valuable insights into the potential pitfalls of the AI funding boom. He emphasizes the need for caution regarding AI-related investments and warns of possible spillovers if the market collapses. Cohen discusses the challenges in private debt markets, the importance of selective corporate bond investment, and the outlook for corporate issuance through 2026. He also highlights the significance of active management and prudent strategies in navigating the uncertain landscape.

Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments, discusses investor complacency amid recent debt-market turbulence. She highlights the risk of higher rates impacting smaller companies and lower-rated issuers facing refinancing challenges. The conversation shifts to credit opportunities related to AI infrastructure and the need for caution in evaluating popular tech valuations. Fernandez also emphasizes the importance of balancing responsible investing with performance, arguing that thoughtful credit strategies can minimize emerging risks while maintaining returns.

Adam Sklar, Co-Chief Investment Officer at Monarch Alternative Capital, discusses critical trends affecting corporate credit and investment strategies. He emphasizes that a declining US economy poses a bigger threat than fraud, highlighting widespread economic pain. Sklar points to sectors like autos and chemicals as potential opportunities while warning of risks in software companies. He also examines how tariffs impact consumer prices and explores the role of loan modifications in restructuring, revealing that careful monitoring is essential in a volatile landscape.

Joel Holsinger, Partner at Ares Management, shares his insights on why private credit can better weather market blowups compared to public debt. He emphasizes the extensive due diligence allowed in private lending, which can unearth risks before they become crises. The conversation also covers the growing sectors of asset-backed finance and data-center lending. Holsinger highlights the need for cautious underwriting, especially amid potential market overheating, while also discussing innovative transactions and the importance of maintaining selective investment strategies.

Jim Schaeffer, Global Head of Leveraged Finance at Aegon Asset Management, discusses the looming distress in highly indebted companies as the economy slows. He shares insights on third-quarter earnings, the implications of lower interest rates, and the distinct stress patterns across sectors like chemicals and food. Schaeffer also emphasizes the importance of understanding consumer behavior and the risks associated with public versus private credit markets, all while urging caution around late-cycle investment trends.