Fortune favors the bold in credit markets this year, with the biggest returns coming from the highest-risk debt. To analyze why and what’s next, we’re joined by Gowri Gurumurthy, a veteran high-yield bond reporter at Bloomberg News. Triple C rated bonds and leveraged loans are poised to extend gains barring a major geopolitical shock, while defaults will probably stay low, Gurumurthy says. Also in this episode of the Credit Edge, Bloomberg News senior editor James Crombie asks Bloomberg Intelligence analyst Robert Schiffman about the outlook for the technology sector amid an explosion in artificial intelligence. Nvidia is the poster child for AI, with huge potential to increase free cash flow, Schiffman says. See omnystudio.com/listener for privacy information.

Riskiest Junk-Bond Bets Pay Off; the AI Explosion

The Credit Edge reviews the top credit news of the week and looks at the week ahead, with in-depth research of the most important corporate sectors, trends and themes. Analysis of specific corporate bonds and credit default swaps is backed by Bloomberg Intelligence's robust data sets and indexes.

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US companies with about $200 billion in debt — 10% of the junk market — can’t survive at prevailing elevated interest rates, according to Bank of America. “At the bottom decile, we are looking at issuers that are in most likelihood not going to be able to come out of this high-rate episode without doing something to their balance sheet,” says Oleg Melentyev, head of US high-yield strategy at Bank of America, in the latest Credit Edge podcast from Bloomberg Intelligence. “Half of that segment is free-cash-flow negative unless the Fed cuts interest rates soon and deep — which is a pretty weak assumption,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Credit Analyst Matthew Geudtner. Also in this episode, Melentyev and Geudtner discuss the outlook for companies in the commodity and capital goods sectors.  See omnystudio.com/listener for privacy information.

High Rates Crush $200 Billion of Junk Debt, BofA Says

Invesco is buying real estate investment trust debt and preferred bonds from banks, betting that the US economy stays strong and interest rates eventually fall. “If you’re looking at yield, it is kind of a golden age for bonds,” says Matt Brill, the $1.6 trillion money manager’s head of North America investment-grade credit, in the latest Credit Edge podcast from Bloomberg Intelligence. “You’re getting paid to wait and at some point here, you’re going to get that kicker of the Fed starting to cut,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Tolu Alamutu. Also in this episode, Brill and Alamutu discuss commercial real estate risks and opportunities as rates stay high.  See omnystudio.com/listener for privacy information.

Invesco Buys REITs, Bank Bonds in Credit ‘Golden Age’

Household debt is a good investment as the US economy remains strong, Jeremy Forster, portfolio manager at Wellington Management, says in the latest Credit Edge podcast from Bloomberg Intelligence. “We do still think that the US consumer is in really good shape,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Arnold Kakuda. Forster expects “compelling” returns in fixed income for 2024, which he thinks will be the year of the bond. In addition, Wellington likes financial sector and electric utility debt. Forster and Kakuda also debate liability-driven investing and risk in the banking sector as interest rates stay high.  See omnystudio.com/listener for privacy information.

Wellington Bets on US Consumer in ‘Year of the Bond’

Rising private credit stress will inflict losses on investors and spur volatility, Jerry Cudzil, portfolio manager at TCW Group, says in the latest Credit Edge podcast from Bloomberg Intelligence. “Default rates are going to pick up in a really material way in private credit,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst David Havens. “We are currently seeing some real stress,” says Cudzil, who expects “accidents” as documentation weakens and pay-in-kind deals proliferate. Cudzil and Havens also discuss the broader financial markets implications of this turbulence, and how current leverage levels compare with 2007. TCW is underweight corporate credit but sees opportunity in collateralized loan obligations and agency mortgages.
Listen to this episode on Apple Podcasts and Spotify.  See omnystudio.com/listener for privacy information.

TCW Expects Private Debt ‘Accidents’ as Stress Builds

Western Asset Management Co. sees “compelling” opportunities in commercial real estate debt, Co-Chief Investment Officer Michael Buchanan says in the latest Credit Edge podcast from Bloomberg Intelligence. This includes loans for warehouses, distribution centers and hotels, he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Stephen Flynn, adding that the firm is cautious on offices. In addition, Western Asset likes collateralized loan obligations and debt from companies in the communications sector. Also in this episode, Buchanan and Flynn discuss regulatory risk in mergers and acquisitions, and how investors navigate increasingly aggressive liability management transactions.  See omnystudio.com/listener for privacy information.

Riskiest Junk-Bond Bets Pay Off; the AI Explosion

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