Rates

Rising interest rates and shifting inflation expectations are fundamentally reshaping global credit markets, with long-term bond yields climbing due to robust economic growth and significant AI-driven capital expenditure. While the U.S. consumer remains resilient, the increased interest burden on new debt threatens to slow financing growth, particularly in the housing and auto sectors. Wayne Dahl, co-portfolio manager for Oaktree’s Global Credit Strategy, highlights that while credit fundamentals remain strong, investors must navigate a landscape where higher yields are essential to offset potential volatility. Active management is critical in this environment as the dispersion between high-quality and distressed borrowers widens. Beyond traditional corporate credit, structured products like non-agency residential mortgage-backed securities and newer vintage collateralized loan obligations provide compelling yield alternatives, offering investors opportunities to capture value without extending duration in an uncertain rate environment.