Oaktree Capital Management believes the risk of a US recession next year is increasing due to weaker spending and disposable income as commodity prices and labour costs veer higher.
Global investment giant Oaktree Capital Management believes the risk of a US recession next year is increasing due to weaker household spending and disposable income, at the same time as businesses face rising commodity prices and labour cost inflation.
Oaktree, however, pushed back on the idea that higher interest rates would trigger a spike in defaults by US high-yield borrowers. “Quantitative tightening could be disruptive in ways that are more challenging for investors to model than rising interest rates, for the simple reason that balance sheet reduction on the massive scale currently anticipated has never occurred before,” said Mr Panossian.
Mr Panossian argued the anticipated reduced pace of CLO issuance, combined with higher yields demanded by CLO buyers, could restrict the availability of credit to companies borrowing money through the underlying loans. That may lead to defaults by those unable to refinance. CLOs pay higher returns than traditional debt, but are also riskier.
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