Rates

Shifting interest rate expectations and rising government bond yields are fundamentally reshaping the landscape for global credit markets. Wayne Dahl, co-portfolio manager for Oaktree's Global Credit Strategy, attributes this volatility to persistent inflation and increased capital demand driven by massive AI-related corporate spending. While the U.S. consumer remains resilient due to locked-in fixed-rate debt, higher borrowing costs are cooling housing and financing activity. Investors face a complex environment where traditional corporate credit requires rigorous active management to mitigate default risks. Consequently, opportunities are emerging in structured credit, specifically within non-agency residential mortgage-backed securities and high-quality CLOs, which provide attractive yields and diversified risk profiles compared to pure corporate debt. Navigating this environment demands a focus on income-earning potential while balancing the interplay between widening credit spreads and the broader economic impact of sustained high interest rates.