Why Credit Conditions Have Actually Eased Over Past Year | Oaktree’s Wayne Dahl on High-Yield Bonds, Leveraged Loans, Private Credit, and the Recession Yet To Arrive
Episode publishedPodcast: Forward GuidanceForward Guidance
Transcript preview
Preview only
Jack: Forward guidance is brought to you by VanEck, a global leader in asset management since 1955. You'll be hearing more about a VanEck ETF later on. But for now, let's get into today's interview. I am very pleased to be welcomed to forward guidance, Wayne Dahl, managing director and co portfolio manager at Oaktree Capital Management. Wayne, great to see you.
Welcome to forward guidance.
Wayne: Thank you, Jack. It's a pleasure to be here.
Jack: It's pleasure for me to interview you, Wayne, and I'll tell you why. On this program forward guides, we've done a lot of work, a lot of interviews on the banking system, and the banking system is important. They create a lot of credit, but increasingly, a lot of credit, around the world, but particularly in the United States, is being, underwritten and created outside of the the banking world. And Oaktree Capital Management where you work is a leading place where that, is done. So I first so we're gonna be talking about, a lot of a lot of, areas of credit outside of the banking system.
So the high yield bond market, the, leveraged loan market, the bank loan market, the collateralized loan, obligation market, CLO. Wanna zoom in on the the high yield bond market? I just did, you know, some some, back of the envelope math. And and based on the where the high yield spreads are, I said roughly go back to 1998 where they are about 3.3%. At 86% of the time, going back to 1998, credit spreads have been wider than that, indicating that the market is quite sanguine about economic opportunities and that investors are not being paid that much above treasuries.
So tell us, what is it like to invest in an environment, like like that?
Wayne: Well, first of all, Jack, I mean, you're tight compared to history, but I think there's a few things that you have to think
Jack: about maybe that go just beyond the spread itself. The the first thing
Wayne: I would say is the yield on high yield is between 7 a half and 8 percent, today and over over the last few months, which if you did that same analysis, you would find that that would actually appear quite favorable over that same time period, especially if you zoom into the the post fin ad was really your only source of return. So if rates were, you know, 1% and you had that 3 a half percent, credit spread, you would have a 4 a half percent yield. So, again, about 300 plus basis points behind where that yield is today. So I think the yield alone is is a big factor, and I do think that's
Keep exploring with a free account.
A free account preserves the short preview. Upgrade to Pro for the full transcript and episode chat.