Gimme Credit
oaktreecapital.com · 2025-03-06 · tier T2
Source: Memo · oaktreecapital.com dated 2025-03-06. Auto-generated factual summary. Not investment advice. Verify before acting.
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.
Citations · 6
“the annualized return on high yield bonds was 7.83%, compared to 5.14% on 10-year Treasurys”
p#17 · confidence 95%
“the yield spread is around 290 bps, one of the narrowest spreads on record since high yield bonds began to be issued in 1977-78”
p#16 · confidence 95%
“the high yield bond universe's default rate has averaged 3.5%, and defaulting bonds have cost investors about 2/3 of the money they had at stake”
p#18 · confidence 95%
“over the 10- and 15-year periods, they outperformed those indices by about 3 percentage points per year despite having been bought at the worst possible moment spread-wise”
p#65 · confidence 85%
“the tide has never gone out on private credit, meaning we haven't had an opportunity to see its flaws”
p#74 · confidence 90%
“BB 32.7% [1999] 52.6% [2024]”
p#1 · confidence 95%
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Howard Marks
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