Gimme Credit

Howard Marks contends that high yield bonds and credit instruments present compelling investment opportunities despite yield spreads near historic lows. He argues spreads of ~290 basis points are adequate when assessed against expected credit losses rather than historical averages. Marks notes that from 1986–2024, high yield bonds returned 7.83% annually versus 5.14% for Treasurys, and that even investors who bought at the June 2007 all-time spread low of 241 bps achieved 7.35% annualized returns over 10 years. He emphasizes the contractual nature of bond returns—if held to maturity and paid, investors receive their promised yield regardless of interim price fluctuations. On private credit, Marks sees fair risk-adjusted returns but flags untested downside risks given the sector's emergence post-2011 without experiencing a major recession. He concludes credit offers higher expected returns than the S&P 500 with less variability, making it preferable despite narrow spreads.