Senior investors at $200 billion credit manager Ares say public debt markets are overestimating the extent of borrower defaults.
Global credit markets are pricing in “an abnormally high” level of defaults over the next two years, which is creating compelling return opportunities for investors in loans and bonds.
Ares Management partner of global liquid credit Samantha Milner said the credit spreads could widen further, but that was not the firm’s base case. The spread hit 6 per cent recently but has since fallen back to about 5.5 per cent. These are levels rarely seen over the past decade and imply a wave of defaults. The overall interest rate in the high-yield bond market is about 9 per cent.
The long-term historic default levels for high-yield bonds are about 3 per cent, and 4 per cent for leveraged loans.
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