FICC Focus Special: High Yield Outlook

Wider spreads and credit enhancement causing upgrades in auto asset-backed securities reduces the sector’s risk against similarly rated and maturity corporate debt, says Rod Chadehumbe, Bloomberg Intelligence ABS Strategist. Chadehumbe joins host Ira Jersey, BI’s US Rates Strategist to discuss the findings from the first ABS Primer on available on the terminal. Though spreads are tight compared to the five-year average, inflation may not cause spreads to widen. The note also makes the case for Auto ABS against similarly rated and maturity corporate debt. Chadehumbe isn’t concerned about the current level of subprime delinquencies given the credit enhancement these structures have, but is concerned with the job market and what happens if delinquencies rise much further.

Cross-asset markets are under stress given the bi-modal risks of de-escalation vs. prolonged conflict. This edition of All Options Considered podcast discusses the probability distribution around the outcomes of the Iran war and markets. BI’s Chief Global Derivatives Strategist Tanvir Sandhu is joined by Edward Fishman, author of Chokepoints: American Power in the Age of Economic Warfare and Senior Fellow at Council on Foreign Relations.

“Technicals for high yield post-Covid have been very strong, with pretty limited net new supply, minimal downgrades, strong demand given elevated base rates and pretty reasonable credit spread,” says John McClain, Goldman Sachs Asset Management’s global co-head of High Yield and Bank Loans. “We’re seeing some net new supply from areas like data-center debt,” and “large LBO bonds that are coming over the next couple of weeks, in conjunction with a couple of decent sized cap stacks migrating to high yield will probably lead to some indigestion in the marketplace.” McClain joins Bloomberg Intelligence’s Noel Hebert on the latest Credit Crunch podcast to discuss data-center vs. software issuance, private credit knock-on effects and where to find value in the current market. The Credit Crunch podcast is part of BI’s FICC Focus series.

“The thesis of AI is very big. It’s probably one of the largest events in at least my lifetime,” says Monroe President Zia Uddin, discussing the creditor concerns about how AI may affect borrowers. “But what ends up happening is everyone kind of throws the baby out with the bathwater.” Uddin joins Bloomberg Intelligence’s Noel Hebert on the latest episode of Credit Crunch to talk about why not all software is created equal when it comes to AI exposure, as well as the benefits of originating deals and having navigated prior cycles when it comes to responding to market volatility. Uddin also discusses the large domestic opportunity, growth areas for the firm, the current interest rate climate, the varied risk profiles of large vs. mid-market lenders and retail vs. institutional needs.

The atmosphere around the Federal Reserve has evolved as Chair Jerome Powell has grown more comfortable in press conferences, even amid legal and political pressure. Michael McKee, Bloomberg News international economics and policy correspondent, joins Ira Jersey, Bloomberg Intelligence chief US interest-rate strategist, and Will Hoffman, BI US and Canadian rates strategist, on this Macro Matters edition of the FICC Focus podcast series to discuss this and other issues. The conversation explores the future of Fed communications, including debate over the SEP and dot plot, whether a Kevin Warsh chairmanship could bring fewer public remarks from officials, and what changes might be realistic for the balance sheet, bank regulation and the Fed’s broader mandate. They also examine dissents at the FOMC, how different types of policymakers adapt once inside the institution, and why this year’s semiannual monetary policy testimony may not occur before Powell leaves office.

“What’s different in private credit versus large broadly syndicated loans is in private credit they’re very focused on the ability to incur additional debt, the ability to distribute assets or distribute money through dividends or otherwise,” says Stephen Boyko, partner and co-founder of Proskauer’s Private Credit Group. “They’re also incredibly concerned about the flexibility of the documents.” Boyko joins Bloomberg Intelligence’s Noel Hebert on the latest episode of the Credit Crunch podcast to discuss the evolution of private credit and private credit documentation, why current headlines are inconsistent with market trends and lender protections. The two also discuss key covenants, the incidence of default and the growing bias toward higher-Ebitda borrowers.

“The theme that we’re seeing a lot of is, do we do the same old LME that we would have done six months ago or a year ago, or should we do more of a comprehensive fixing of the balance sheet once?” says Brian Resnick, a restructuring partner and head of Davis Polk’s Liability Management & Special Opportunities practice, discussing trends in liability management strategies as borrowers prepare for looming 2028 debt maturities. On this episode of the State of Distressed Debt podcast, Resnick joins Bloomberg Intelligence’s Negisa Balluku and Phil Brendel to explore the growing consideration of more aggressive, one-shot deleveraging transactions and the advantages for lenders within the “in-crowd.” They also discuss the implications of banks expanding into private credit, what happens if anti-cooperation language gains traction, and the increasing sophistication of disqualified lender provisions. The podcast was recorded at the 22nd annual Wharton Restructuring & Distressed Investing Conference.

The soaring short-term yields in the UK may be somewhat overdone, says Bloomberg Intelligence European Rates Strategist Huw Worthington on this Macro Matters edition of the FICC Focus podcast series. BI’s US Rates Strategist Ira Jersey and Bloomberg Economics Chief US Economist Anna Wong joined him on a webinar the morning of March 19 to discuss the Federal Reserve, Bank of England, and the European Central Bank meetings and the ramifications for rate markets. The trio also discuss some scenarios that were asked during the live Q&A portion of the webinar, and highlight how oil is currently forcing central banks to rethink inflation forecasts. The Macro Matters podcast is part of BI’s FICC Focus series.

Emerging market central banks have adopted a hawkish bias following the war-induced oil shock, yet fiscal concerns could weigh on domestic currencies as local governments attempt to mitigate the negative impact of rising energy prices. Cem Karacadag, head of global sovereign debt at Barings, joins Damian Sassower, Bloomberg Intelligence’s chief EM fixed income strategist, on this episode of the EM Lens podcast to assess portfolio risk, country exposure and institutional interest in the wake of the war in Iran. Karacadag and Sassower discuss issues ranging from curve shape and currency volatility to spread resilience and safe-haven positioning.

“We traditionally have turned over about 60% of the portfolio per year,” says AGL Credit Management’s Chief Operating Officer Wynne Comer, discussing the company’s approach to managing collateralized loan obligations. “That’s 30% through prepayments, 30% through active management.” Comer joins Bloomberg Intelligence’s Noel Hebert on the latest episode of the Credit Crunch podcast to discuss the evolution of the CLO market past and present, her transition from banking into asset management, AGL’s extension into private credit and the outlook for continued growth. Comer also explores due diligence, the state of regulation, where bonds play in the CLO market and factoring for AI. The Credit Crunch podcast is part of BI’s FICC Focus series.