Credit spreads still have room to tighten, but default risk remains elevated in certain sectors.
As a result of the Federal Reserve’s efforts to shore up credit markets, the leveraged credit sector has delivered stellar performance since the lows in March.
While the U.S. speculative-grade default rate could reach 15 percent in this cycle, the market is offering better entry points than seen in years.
Loans present an opportunity to move up the capital structure with better spreads and yields than high-yield corporate bonds.
Prepayment risk for recently originated mortgages remains high as mortgage rates continue to fall.
We prefer short, senior CLO tranches and new-issue commercial and aircraft ABS.
Worrisome pace of downgrades in the leveraged loan market is likely to continue.
Liquidity remains strong after the largest post-crisis SASB and CRE-CLO deals.
WeWork’s failed IPO does not signal the demise of flexible office space.
Investors should continue to limit exposure to CCCs despite recent cheapening because of the asymmetry of potential spread outcomes.
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