The Credit Edge by Bloomberg Intelligence

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.

John Fekete, head of tradable credit at Crescent Capital Group, shares insights from his extensive experience in corporate credit. He discusses the resilience of collateralized loan obligations (CLOs), especially those backed by middle-market borrowers, and why they're tough to disrupt. John highlights the current climate of manageable leverage, the growth of private credit, and emerging opportunities in healthcare and services sectors. He also explores the impact of recent interest rate cuts on borrowers, emphasizing the importance of smart manager selection in preserving CLO value.

James Turner, co-head of European Fundamental Fixed Income at BlackRock, shares insights from his extensive background in leveraged finance and CLO strategies. He emphasizes that collateralized loan obligations present one of the best relative value picks in the credit markets. The discussion explores sector opportunities in autos, healthcare, and chemicals, along with the outlook for defaults and recoveries in leveraged finance. Turner also highlights the importance of nimble credit strategies and the impact of rising defense spending on market dynamics.

Michael Zawadzki, Chief Investment Officer of Blackstone Credit & Insurance, shares insights on the allure of private credit, highlighting its 150-200 basis points premium over traditional debt markets. He explains why speed and value are attracting borrowers to direct lenders and the growing interest from insurers in long-duration private investments. The conversation also touches on the potential in data center financing, the competitive landscape of managers, and the anticipated rise in mergers and acquisitions as the market evolves.