May 2, 2024 • 49 mins
Western Asset Management Co. sees “compelling” opportunities in commercial real estate debt, Co-Chief Investment Officer Michael Buchanan says in the latest Credit Edge podcast from Bloomberg Intelligence. This includes loans for warehouses, distribution centers and hotels, he tells Bloomberg News’ James Crombie and Bloomberg Intelligence Senior Credit Analyst Stephen Flynn, adding that the firm is cautious on offices. In addition, Western Asset likes collateralized loan obligations and debt from companies in the communications sector. Also in this episode, Buchanan and Flynn discuss regulatory risk in mergers and acquisitions, and how investors navigate increasingly aggressive liability management transactions.
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Episode Transcript
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Speaker 1 (00:18):
Hello, and welcome to The Credit Edge, a weekly markets podcast.
My name is James Crumbie. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Michael Buchanan, co
Chief investment Officer at Western Asset Management. How are you, Michael.
Speaker 2 (00:30):
I'm doing great, James, and appreciate you having me on.
I'm looking forward to this.
Speaker 1 (00:35):
Thank you so much for joining usday. We're excited to
dig into your market views and the outlook. Also delighted
to welcome back Steve Flynn with Bloomberg Intelligence. Great to
see you again, Steve.
Speaker 3 (00:44):
Great, thanks for having me James.
Speaker 1 (00:46):
So just to set the scene a little bit here,
credit markets are coming under pressure as government yields keep
going up, but corporate bond spreads are very very tight,
so you're not getting very much compensation for the risk
of default or downgrade. Data on the US economy and inflation, meanwhile,
are coming in heart pushing yields even higher, making corporate
bonds look more attractive than they have done in years.
(01:07):
So demand is high and there are some signs of
froth in the marketplace, which I hope we will get
to a bit later in this show. At the same time,
we're seeing record levels of bond issuance and loan issuance.
There's also a boom in private markets asset based finance
and structured debt. Like clos, treasurers and CFOs have a
lot of options open to them, assuming they are happy
paying these higher rates. All this bullishness those seems founded
(01:31):
on a belief that the US economy will avoid recession.
Earnings are solid, most companies can afford to pay the
much higher borrowing costs, and everyone is in a good
place in terms of corporate America. On the other hand, though,
there seems to be quite a lot of worry about
commercial real estate, war, geopolitics, elections, and there are some
(01:51):
signs of balance sheet deterioration. Defaults and bankruptcies are ticking up. Meanwhile,
total returns are getting hammered by the rising treasury yields.
So on that notes, Michael, what do you make of
all this? Is it still the year of the bond
or the golden age for credit? As people keep telling us,
what's your view?
Speaker 2 (02:08):
Yeah, James man listening to that, It's definitely a complex picture.
And I guess what I would say is that to
answer your question, yes, this is in our view, this
is going to be a really good year for fixed
income in general twenty twenty four, but also in particular
for corporate credit. We're pretty excited about that. We've really
(02:32):
been struggling, and you know, I think every one of
those insights that you brought up in your introduction is
something that contributes to one of these two forces. Basically,
we've had the macro environment, which has been a headwind
for credit, meaning rates going higher, central banks, you know,
(02:52):
leaning into restrictive policy. That's just been a big headwind
for anything in fixed income. But the flip side is
that a lot of these spread sectors, corporate credit, you know,
investment grade, high yield, if you look at the underlying
credit quality and you look at fundamentals, it's generally been
pretty supportive. You know, companies are performing well, and so
(03:17):
you see you know, spread behavior that's that's been contained
and well behaved. So you put it all together and
you kind of have these two conflicting forces. But what
it's translated into is, you know, reasonable returns to date
for credit investors, but they're doing that in the face
(03:39):
of increasing interest rate environment. And what we think is
going to happen in twenty twenty four here at some point,
and you know, we'll probably get more information today, but
at some point you're going to see the FED and
other central banks down shift from what we currently think
is restrictive policy to something either a little more neutral
(04:02):
or perhaps even a little more accommodative as the year
moves forward, and ultimately that will create a nice tailwind
for fixed income investors.
Speaker 1 (04:14):
Listening to this later on in the week, for example,
I mean we are talking May first, the FED is
about to speak. Everyone is really very focused on rates
at the moment. I have to ask Michael, what's your view.
I mean, we've started the year thinking about six rate
cuts for this year. Now we've gone to zero, maybe
even a hike.
Speaker 2 (04:31):
Yeah, I think you know again, well, I think the
first few months of the year were a bit of
a surprise because the FED had signaled that, you know,
they believe that the data was coming in favorable in
terms of inflation going towards their two percent target, you know,
in the communication from the FED late in twenty twenty three.
(04:54):
The market believe that that would open the door for
a number of cuts, like you said, maybe even six
or seven and then the data that's come in year
to date, for the first few months has been hot,
and you know, that's been a challenge for the FED.
And that's you know, all the way down to now,
I believe you know, about one hike or one cut
(05:15):
is priced in for the year. We still think cuts
are on the table. We think the FED is still
going to lean in that direction. I think they're waiting
for the data to give them some validation of that.
And you know, I think the the the bar for
actually going back and pivoting the other way for hiking
(05:38):
is quite high. So I know the market you're hearing
a lot of views about cuts versus hikes. Our general
view is that the bias is still towards cutting. The
FED wants that they do believe current policy is restrictive.
If you just look at where they think ultimately the
long term rate is going versus where current rates are.
(06:01):
You know, they would call that restrictive policy. So they're
waiting for the data to give them some confirmation. We
think ultimately they'll get that in the next few months
and that should clear the way, you know, for at
least one or two cuts in twenty twenty four.
Speaker 3 (06:16):
Hi, Michael again, this is Steve Flynn, senior credit analysts
with Bloomberg Intelligence. Question. So you said you think there's
a bias towards cutting. I'm just swordering your view on
the economy. It's interesting if you look at the ec
FC function on Bloomberg, which is the probability of recession
based on like, you know, thirty contributors to Bloomberg, It's
(06:36):
now at thirty percent, and this is down from about
sixty five percent a year ago. So it seems like
the overall market is really seeing a much lower chance
of recession. Do you think that could have any impact
on your view for potential cutting.
Speaker 2 (06:51):
I think it definitely plays into it. You know, you
go back a year, a year and a half ago,
and I think the general consensus was that a recession
was you know, almost unavoidable, and you know a lot
of times and I think the Fed even probably was
thinking the same thing. You know, the Fed doesn't always
(07:15):
get it right in terms of their prediction in terms
of where the economy is going to be. I do
think the soft landing camp, which is the camp that
we're in, I think you know that that's the right
path forward and the most likely path forward. For the economy.
But it's certainly it's not a certainty. And you know,
(07:39):
I think that thirty percent number that you suggested sounds
about right. That's when we do our analysis at our
macro committees. You know, again, soft landing is our most
likely scenario. Maybe we're a little different in that we
think the next most likely scenario is actually growth surprises
(07:59):
to the down side, and you know, we could slip
into a mild recession. We think the odds of any
kind of significant or severe recession are very low, just
because the corporate sectors in such good shape. Consumer balance sheets,
even though savings have been depleted, consumer balance sheets are
still healthy. So you know that that's the way we're
(08:22):
seeing the big picture. But but I think that's about right.
You know, you know, the thirty recession, you can't roll
it off the table. But I think it's a it's
it's not the base case, and it's it's a lower probability.
Speaker 1 (08:33):
Isn't any kind of recession though bad for credit? If
you look at spreads, you know history of spreads, I mean,
they should be much much higher even you know, even
if there isn't a recession, Mean, what do you make
of the spreads right now.
Speaker 4 (08:42):
Yeah, I think you're You're right, James.
Speaker 2 (08:45):
I mean it's it's you look back historically, and anytime
you have a recession, even if it's a mild recession,
you're going to get spread widening. And given where spreads
are right now, they look full, you kind of go
back and you look at historical spreads for the investment
grade market or the high yield market, and it's really
(09:07):
hard to argue that that that you know, we're not
trading through historical averages. The reason that we're still constructive
on corporate credit and we still think that owning, whether
it's high yield or investment grade, you're going to do
well in that asset class. For twenty twenty four is twofold. Again,
we think the odds of a recession are fairly low.
(09:30):
We think, you know, the odds of a simply slower
growth from where we are now is the most likely path.
And we also would say this that you know, you
can't just look at spreads in isolation and draw conclusion
from that. You can't say that you know the high
yield market, you know, for instance, historically has you know,
(09:53):
traded at four hundred over just making these numbers up.
You can probably you know, depending on any time period
you want, you can come up with different estimates. But
you know, let's say historically the high marks trade at
four hundred over. It's a three hundred over now, therefore
it must be rich. You really have to look at
the intersection of fundamentals and valuations, and when we do that,
(10:15):
we would say that that valuations are quite strong or
I mean fundamentals are quite strong right now, even I
would say uniquely strong and actually justify or validate where
spreads are. So I think going if you're let's say
we are going into a recession, I think at least
(10:38):
the corporate sector is in a good position fundamentally to
endure and be resilient through a recession. And also from
a strategic standpoint, we have migrated our credit book a
little more towards higher quality, with the thought being that
overall yields are pretty high, they're compelling. You're going to
(10:59):
do well with the income carry and the overall yield
you get from owning corporate credit right now, so you
don't necessarily need to take incremental risk, let's say, and
get in, you know, go into higher beta or lower
rated corporate credit. If you're in high high yield, you
can simply hang out in the sort of double bees
single bees. And if if we do slip into a
(11:22):
mild recession again, you you should be able to be
a little more resilient there. You will get spread widening,
but it'll be a little more dampened then you might
otherwise experience if you're in something you know, a higher
beta triple C for for instance.
Speaker 1 (11:38):
I do want to get into the sort of specifics
of your portfolio in terms of sector and rating, But
before that, I do want to go back to this question.
I mean, it just puzzles me, and especially like talking
to people that have been doing this a long time,
like like you, Michael, it's it's you know, it's such
a small like the spread in a in a corporate
bond is such a small percentage of the yield. Obviously
the yields inflated by the treasury haven't gone up, but
(12:01):
it's the smallest percentage since two thousand and seven. And
we all know what happened next there. But does that
not concern you in the slightest bit. I mean, you know, textbook,
it should be compensating you for the risk of corporate
versus government.
Speaker 4 (12:14):
Right, yeah, no, it's James. It's a really good point.
Speaker 2 (12:17):
And I would say as a credit investor, of course,
we always want more spread, you know, all else being equal,
you know, we're happier when spreads are wider, when we're
you know, getting more incremental compensation for taking that credit risk.
So I'll just I'll say that, but you know a
(12:38):
lot of times the market just doesn't give us a
really easy choice like that, where you know you'll have
the you know, the combination of really good fundamentals, which
again that's kind of the way we're seeing the market
right now, very good fundamentals and very generous spreads. Right now,
I would say we're getting we're getting the combination of
(12:59):
healthy fundamental good fundamentals, you know, not just how they
look today, but when we do our analysts work and
we look forward over the next two to three quarters,
we see those fundamentals continuing. So we're getting that healthy backdrop.
But then the bigger challenge really is that you know,
you'd like to get more compensation, you'd like to get
(13:21):
more spread for that. So what it translates to for
us is that you know, corporate credit is at maybe
fair value, reasonable value. You know, I do think that
if you think there's some other drivers that you need
to think about, especially in the investment grade market. But
(13:43):
this even filters into the high yield market, and that
is you know, we'll go all the way back to
the two thousand and with the Corporate Credit Facility, when
the FED announced the corporate Credit Facility and introduced corporate
(14:04):
bonds into their their their their arsenal and started buying
corporate bonds that had never been the case before. So
they do have that in their toolkit as well, so
so kind of keep that in mind. It's it's something
that you know, if we were to go to a
period of significant draw down, the FED and now other
(14:25):
central banks have that in their their toolkit, they will
and have shown the ability and the willingness to buy
corporate credit.
Speaker 3 (14:34):
So, Michael Steve, again you're talking a little bit about
high yeld if we dig a little deeper and mentioning spread.
I mean, one sector that trades very, very wide is
the communications sector r it's by far the widest sector
in high yield. I don't know how you think about
that sector. Obviously, there's a lot of changes going on
there with you know, high competition for broadband, and you know,
the changing the way people consume media. But do you
(14:57):
see that as a sector where you worry about defaults
or or are you attracted by the you know, the
high spread and potential out for outperformance.
Speaker 4 (15:05):
Yeah, you know, Steve, you're you're right.
Speaker 2 (15:07):
I mean, that is a sector that is definitely within
scope right now. It's one of the cheapest sectors in
the high yield market for for good reason.
Speaker 4 (15:19):
You know, certainly there's.
Speaker 2 (15:20):
We all know about cord cutting, the fundamental pressure that
a lot of these these companies are are experiencing. If
you look at the transaction multiples, you know, cable wireless,
you know that used to trade it really fancy multiples
in terms of enterprise values. You know that's come down dramatically.
(15:42):
But at the end of the day, you know, these
companies are still generating a tremendous amount of cash flow.
Speaker 4 (15:48):
If you look at you know.
Speaker 2 (15:50):
Each one there, you know they still have subscribers that
are paying monthly bills. There's a lot of cash flow
to work with. You look at where valuations are right now.
You know, in many cases you're talking bonds that are
in the thirties, forties, fifties. You know, it's just been
(16:13):
a sector that's been under a tremendous amount of pressure.
Some of that is fundamental, some of that is due
to liability management exercises that have become increasingly popular in
the high yeal market and also kind of presenting ongoing risks.
Speaker 4 (16:31):
Sort of a different topic, and I won't venture too.
Speaker 2 (16:34):
Far into that right now, but steve to kind of
cut to the chase.
Speaker 4 (16:39):
We like that that sector right now.
Speaker 2 (16:43):
Communications in general, we think that the relative value is
heavily skewed in favor of investors. Not without risk, for sure,
you know you need to be very careful, but again
I think that's it's we're always looking for those types
(17:03):
of businesses where you are getting stable, consistent, reliable, predictable
cash flows, and we do think in general communications as
a sector offers that. And again, valuations where they are,
we think are are quite compelling.
Speaker 3 (17:20):
And given that you as co chief investment officer looking
at both investment grade and high yield. I mean, one
of the big names that pops out is Charter right. Charter,
you know, it's been under some pressure, it has some
things going on, but you know it has seventy billion
dollars of secured bonds and loans that have two of
the three rating injuries as investment grades. So I think
(17:41):
it's it's really really important for Charter and maintain its ratings. Right,
you cannot have that much debt drop into high yield.
It's Charter's unsecured bonds already the biggest name in high yield.
So they've made now an adjustment to their preferred net
leverage ratio. Right, they had always say a target of
four to four and a half times consolating that leverage,
(18:01):
but have always operated at the high end of that range,
and now they're going to move towards the middle of
the range, which is positive progress. Is that a name
you worry about a lot? Is that something you're comfortable
now with their slight change in the preferred leverage target?
Speaker 4 (18:16):
We we we do like Charter.
Speaker 2 (18:18):
We we we've got you know, we've we've been a
supporter of Charter for for quite some time. Again, a
lot of that relates to the specifics of the business.
But again I would I always you know, at Western Asset,
we always try to bring it back to relative value.
(18:38):
And when we look at where Charter trades, and you
kind of have an opportunity. If you want to stay secured,
you can be in the investment grade portion of the
capital structure. If you want to take a little more risk,
you can go into the unsecured portion of the of
the charter capital structure. So there's kind of something for
everyone there. But we do we we do like it
(19:03):
right now. We wish they'd be maybe and and maybe
they're moving in this direction a little less shareholder friendly,
a little more you know, bondholder vigilant or bondholder focused.
And and I think when you have, like you mentioned, Steve,
two of three ratings that are that are I G.
There is a there is a big gap still between
(19:26):
how a triple B company issues versus how a double
B company issues, just in terms of the cost of funding.
And and you know, Charter management smart, they know that
they're cognizant of that. So our belief is that you know,
they will do what they need to do to keep.
Speaker 4 (19:44):
That investment grade rating.
Speaker 2 (19:46):
As you mentioned, seventy billions, it's a lot of it's
a lot of debt. You wouldn't want to see that
drop into the high ual market. But if it did,
and I and I don't think it will, but if
it did, it's not unprecedented. We've gone through peer of
that before. I mean, the energy crisis in twenty fifteen
sixteen really almost you know kind of you know, for
(20:11):
for two or three years, you know, you just had
a number of downgrades that were coming into the high
yield market, and the high yeld market did a pretty
good job of absorbing that. That supply wasn't without disruption,
there wasn't some price there, It wasn't without price discovery.
But the high old market is you know, it's a
(20:32):
it's a much bigger market now than you know what
it was ten fifteen, twenty years ago. It's capable of
absorbing that kind of supply. The only thing is, you know,
it's gonna it's gonna, like I said, be a period
of a little bit of price adjustment and price discovery.
Speaker 1 (20:49):
So you brought up relative value, Michael, Thank you for that.
It's one of my favorite topics. Whereas if you know,
you look around everything you're doing right now across the board,
you know, big firm, big mandate, where is the best
relative value for you?
Speaker 4 (21:04):
Yeah?
Speaker 2 (21:04):
So I it I manage a strategy that that's called
multi asset credit. And the fun thing about that strategy, James,
is that it doesn't have a benchmark. It allows you
to have the autonomy and the flexibility to go where
where the best opportunities are and really emphasize and and
(21:24):
leverage off of that relative value analysis that that we
do here in the relative value analysis that that you're
talking about. So, I think some interesting areas right now.
We'll just kind of move off of corporate credit for
a second and move over to structured credit. And I
think within structured credit, commercial real estate is an interesting
(21:49):
area that our team has been allocating a lot of
a lot of resources on, a lot of focus on,
and we are finding opportunities there.
Speaker 4 (21:59):
And and I.
Speaker 2 (22:00):
Would say when people hear commercial real estate, they initially
think office real estate, and that's not necessarily what I'm
talking about. I think we office real estate. Most of
us are very aware of the challenges that market faces,
the overhang there. You know, we probably still have at
least a year plus of continued stress in that market. Eventually,
(22:24):
we do think you're going to find some opportunities there,
you know, like any market where everyone gets too aligned
in a negative way, you know, ultimately the pendulum swings
too far and it creates opportunity. But we wouldn't say
we're necessarily there yet, but it has created the overhang
of office real estate has created some vulnerabilities, or not vulnerabilities,
(22:49):
maybe some weakness in terms of valuations in other parts
of the commercial real estate market. So you know, industrial
real estate, think warehouses, storage, distribution centers. You know, that's
an area that's fundamentally working well and attractive. Hotel lodging
(23:10):
continues to.
Speaker 4 (23:11):
To do well. A lot of opportunities there.
Speaker 2 (23:14):
Even retail, I would say, is a is an area
where the there's there's opportunity and our our teams finding
some some compelling stories there is that.
Speaker 1 (23:28):
In terms of the actual loan, I mean you buying
those a discount. Now in the secondary how's that? How
how's that trading?
Speaker 2 (23:34):
There's there's both opportunities. The generic market where we're uh
executing a lot of these trades in is referred to
as just single assets, single borrower. But some of these
are on the secondary side, and and you know, if
you're patient, some can be on the on the primary side.
We are seeing, you know, the new issue volumes have
(23:59):
have ticked up a little bit there. So you know,
there there's a there's a little there's there's ways to
source in in both of those markets, James.
Speaker 1 (24:06):
Because the you know, general sense is that that's a
bit of a you know, an accident waiting to happen,
and there's a lot more to shake out, and you
know the banks are going to be under a lot
of stress because of it. But but you think it's
it's become cheap enough to become an opportunity for a
big asset manager. Let yours.
Speaker 2 (24:23):
Well, yeah, I'll differentiate between office real estate, which you
know is definitely it's it's experiencing, as we all know,
challenges related to occupancy. We think you're going to continue
to have you know, real pressure in that space. But
so I'm talking away from office real estate and more
(24:47):
into those other areas of commercial real estate, which again fundamentally,
you know, we do a lot of work on fundamentals,
and then it's not just corporate fundamentals, even in our
structured credit team, you know, bottom up fundamentals by you know,
by by region, by age of structure, just a lot
(25:08):
of a lot of fundamental work. But those those sectors
generally are are doing well and to your point, James
about the regional banks, I think that's a really good point.
We know that a lot of regional banks are carrying
a lot of commercial real estate, a lot of that office.
I think it's it's likely as we start to get
(25:29):
closer and closer to the point where a lot of
those loans are maturing or needing refinancing, we're going to
start to.
Speaker 4 (25:37):
See some some.
Speaker 2 (25:38):
Some stressed sales of of of real estate, of of
office real estate. And you know, again it's it's going
to get interesting. I think the good news is if
you you know, if you if you want to kind
of look at the glasses being half full, is there's
a lot of capital that's being raised to go after
those types of opportunities. You know, we're not the only
(26:01):
ones who think at some point you will see an
opportunity there. Opportunistic investors want to take advantage of those
when when they show themselves. So I do think you're
going to have a lot of private capital that is
ready to go to go after opportunities when they present themselves.
Speaker 3 (26:22):
Oh, Michael, I just wanted to ask you a question
about M and A. It seems that you know it's
a much tougher regulatory environment, you know, one example being
the recent FTC suing to block the Tapestry acquisition of Capri.
I was just wondering when a Western asset, when you
think about participating in company bonds that are participating in
M and A, do now put a higher likelihood that
(26:45):
a deal will not go through? Or with regard to
providing merger financing, do you need extra protections given the
higher risk that deals will not get approval?
Speaker 2 (26:54):
Yeah, so I would say almost We almost never would invest,
you know, uh, in a in a situation or in
a company based solely on our belief that a merger
will er or won't go through. That's always tricky. You
just never know how how that's going to play out.
(27:16):
You don't want to expose your clients to to to
regulatory risk. There's just a lot of things that can
happen behind closed doors that that you know, where we won't.
We don't really feel like we have a fundamental advantage there,
So you know, it's it's you just wouldn't find a
situation like that where we're going to be putting a
(27:36):
lot of a lot of faith or a lot of
capital to work based on a view that we think
an acquisition will or.
Speaker 4 (27:42):
Won't go through.
Speaker 2 (27:44):
What I would say is, you know, obviously, in our
in our high yield group, you know, the the l
b O part of of M and AS is plays
a big role. And you know, sort of two observations
or two takeaways that I have about.
Speaker 4 (28:00):
You know, the bigger question you just said.
Speaker 2 (28:03):
One is we really haven't seen a lot of l
b O s lately, that the volume is really quieted
down or and maybe some of that is exactly what
you said, you know, due to regulatory reasons, but it
is having an impact on the bank loan market. The
bank loan market's been a big financer of leverage buyout
(28:25):
transactions and there just haven't been hasn't been a lot
of supply there, which is actually creating a bit of
a favorable technical in the In the bank loan market,
you're continuing to see clos that are that are that
are being called so that's taking you know, that's taking
(28:45):
loans out of the market. You know a lot of
companies continue to do refinancings or paydowns. So you combine
that with supply that used to come up a good
pipeline of supply that used to come from the LBO
market that we haven't just seen that much. It's creating
a decent fundamental in bank loans. And the other thing
(29:13):
too again, and I mentioned this earlier, but the liability
management exercises that we're seeing so many of in the
highild space as well in the bank loan space, a
lot of those are being created because of the documentation
(29:33):
that was done, particularly in twenty twenty one, in twenty
twenty two. So I think as leverage buyouts start to
gain traction again, you know, in the coming quarters, in
the coming years, I think investors in both the bank
loan space as well as the public high yield market
are going to be more vigilant in terms of tightening
(29:55):
up the covenants, tightening up the flexibility those covenants allow
that have really brought about this dramatic increase and liability
management exercises or coercive exchanges, the so called creditor on
creditor violence.
Speaker 4 (30:13):
Yeah.
Speaker 1 (30:13):
I mean, as you said, a lot of those liability
management exchanges aren't being done particularly on particularly in fair
terms for the investors. How do you handle that? I
mean you must be getting burned on some of these deals.
Speaker 2 (30:23):
Well, I think you you know, it's any capital structure
that's trading at a deep discount to par you have
to think is vulnerable to these types of of of
of exercises, these types of coercive exchanges. The best way
(30:44):
to combat that is one, you know, you do, I
think have to have a very credible.
Speaker 4 (30:54):
Workout effort.
Speaker 2 (30:56):
You know, we we have dedicated professionals that actually work
with other creditors, work on creditor committees, are in constant
contact with legal and financial advisors, uh, trying to one
get insight on you know, which companies might be vulnerable
to these types of exercises. But when they do take place,
(31:19):
and it would be very hard this year to kind
of miss all of those again, they're there are just
so many in the in the high yal market, but
when they do take place, to make sure that, you know,
we're coordinated with other creditors where uh, to the extent
possible and where it makes sense, linking arms with other
creditors to fight back and and and and do everything
(31:43):
we can to preserve underlying asset value and ultimately avoid impairments.
So I do think, you know, we've we're fortunate in
that we have that type of team here. We have
that type of effort, you know that that proactively works
with a lot of other creditors to to work in
the best interests of our clients and other bondholders. It's
(32:05):
a it's a tough one though, James. I mean, you
know again, we're it's it's a it's a reality in
the in the high Yueld market. We're seeing it more
and more and again that is why I believe that
going forward you will start to see more scrutiny on
on covenants and tightening up on on general covenants that
(32:26):
will be favorable ultimately for the high old market.
Speaker 1 (32:29):
Another dynamic that you kind of brought up was private capsule,
which is such a hot topic at the moment. I mean,
it's it's grown so quickly. I I've told someone recently
about the covenants that they are getting worse volumes of
picking up every Everyone's very excited. It just I mean,
having done this for what it just looks like what
(32:49):
leveraged loans were about twenty years ago. But what's the excitement,
Michael White's what's the buzz?
Speaker 2 (32:55):
Yeah, Well, private credit definitely has has been very popular
and if you think about it, it makes sense. Coming
out of the global financial crisis. You know, a lot
of the bigger banks were stepping away from lending to those,
you know, small to medium sized corporations. So in that
(33:15):
void stepped managers who were willing to offer those types
of borrowers money at attractive rates. You know, and and
and obviously the trade off is, you know, you for
for less liquidity. So if you're investing in private credit,
you know, it's not the day to day liquidity that
(33:37):
we enjoy in the in the public markets, so you're
getting less liquidity. But the flip side of that is,
you know, you were getting incremental spread, you were getting
enhancements to structure, you were perhaps getting better collateral. So
it really resonated with with a lot of investors. They
were willing to give up that liquidity in order to
(33:57):
get these other enhancements that I just mentioned. But you know,
the market's become very popular. It's grown very quickly. By
some estimates, the private credit market now is.
Speaker 4 (34:10):
The same size as the.
Speaker 2 (34:13):
Syndicated loan market as well as the high yield market.
I do think it's a it's a it's a good
thing when you step back and think about the big picture,
you know, companies now have more avenues or more paths
to finance in the market. It's not just a high
yield in the loan market, but it's it's private credit,
(34:34):
and that ultimately should lead to more financial flexibility and
perhaps even lower defaults on a longer term basis. So
I do think there's there, there's there's there's definitively a
good positive that has come from private credit. But like anything,
you know, it's the more money that has gone to
(34:54):
that market, the more competitive it's become, the more spread
compression you've seen, there's just more competition for for more deals.
So so I do think if you were to, you know,
look at the amount of compensation you get for owning
private credit versus public credit, that spread, which toggles over
(35:15):
the years and you know, expands and contracts, strikes me
that we're we're more on the tighter side there than
what we've what we've seen over the past ten.
Speaker 4 (35:25):
To fifteen years. But I do think it's it's it's interesting.
Speaker 2 (35:30):
I do think you're going to continue to see you know,
a lot of people talk about this dis intermediation between
public markets and private markets. We very much believe that
we see that, you know, that rigid line between what
is private credit and what is public credit that is
really started to blur, and it's just not so clear
(35:51):
now that you know your your private credit managers are
specifically going to stay within the clear crisp domain of
private credit and public managers like ourselves are you know,
managers of public debt generally, we're also you know, looking
at and incorporating more and more private like transactions into
(36:14):
our client portfolios.
Speaker 3 (36:16):
Michael, I just wanted to follow one last question on
your potential to see a greater amount of liability management
exchanges in the high yield market. Right when I think
about the communications sector, I could think of, you know,
several potential candidates as we look over the next couple
of years. So when Western Assets considering participating in an exchange,
(36:37):
is it you know, nobody likes to take a haircut
to their principal ode, right, but are you guys, are
you principle is Western okay with doing that if you're
going to be in a better position within the capital
structure and the company has a much more manageable debt
load going forward? Is it that simple to think about
it that way?
Speaker 4 (36:56):
It's it's a it's a it's it's the right question.
You know.
Speaker 2 (37:00):
Obviously, when we initially make a loan, we we expect
to get our coupons and we expect to get paid
back par you know, at maturity or earlier. But you know,
as as companies, you know, go about the the you know,
their their normal path of business. You know, conditions can change,
things can change, and a lot of times it you know,
(37:23):
we we end up with a with a company that
is in a challenged situation. And and again that's really
where these liability liability management exercises are happening. They're not
happening with companies that have bonds that are trading at
or near par. They're usually happening with a company that's
witnessing some stress. So our willingness to engage in an
(37:49):
exchange is really you know, it ultimately boils down to
what's in the best interest of our of our client.
You know, we look at the the current condition of
the company, what are our options that are on the table,
and really try to to to extract the best decision
given that type of information. So you know, I would
(38:15):
say we're we're we're very resistant if we have to
or we're very resistant to taking impairment. But if it's
a situation where you know, let's say bonds are already
trading at thirty or forty cents on the dollar, and
we think that there is likely impairment down the road,
and we can be involved in an exchange and by
(38:37):
doing so increase the underlying collateral that we have, increase
the ultimate recovery that we have for our clients. But
perhaps that comes with taking some impairment. I think we'd
be willing to do that. So it's you know, every
situation's a little different, and I don't think you could
ever say, you know, no, we won't, we won't ever
(38:58):
do an exchange. You know, we'll never take impairment to par.
You always have to look at the situation at hand
and what's in the best interest in how do we
maximize recovery for for for our clients.
Speaker 1 (39:10):
So, going back to an earlier question, Michael, interns of
relative value, I mean, I'm guessing you look globally as well.
You know, what's what's the thing that gives you the edge,
you know, besides real estate, besides structure, credit, is there
anything else that's giving you extra return at the moment.
Speaker 4 (39:26):
Yeah, you know a few things.
Speaker 2 (39:30):
You know, a local currency, emerging markets, you know that
we think that a few cdiosyncratic, but you know quite
a few of those situations India, Mexico, Brazil, all in
local currency.
Speaker 1 (39:45):
Is that corporal or sovereign that's sovereign, okay?
Speaker 2 (39:49):
And again local currency, so you know you are taking
you know, an element of currency risk. But nominal rates
are very high, and you know, again we think that
when you compare real rates in those economies I mentioned
versus develop market real rates, they look pretty compelling to us. Also,
(40:11):
you know, I've kind of we talked a little bit
about levered loans, but but perhaps a sister of the
loan market is clos and I think I've mentioned it earlier,
but clo tranches. So the idea that you know, taking
a collateralized loan obligation and the tranches that are created
from that transaction, to us, those look very attractive and everything.
(40:35):
You know, they're from triple A all the way down
to you know, the more mezzanine tranches double bs. We
think relative to the rating and relative to the structural
integrity of each one of those trenches, and how well
we feel that they'll hold up through periods of stress.
We think that those are those are quite compelling. You know,
(41:00):
over time, we think you are going to see spread compression.
For you know, a c l O UH tranch of
a specific rating versus how a corporate bond with the
same rating trades. Right now, there's a very generous gap.
Speaker 4 (41:14):
You know, if you own a see it.
Speaker 2 (41:16):
Let's say, you know, triple B c l O tranch
versus a triple B investment grade credit. There's a very
there is a very big yield gap there. Over time,
we think that you will see that that spread compression
and you'll see c l O tranches by the same
rating trade you know, certainly not at the same spread
as the corporate issuer, but but you know that gap
(41:36):
should tighten up somewhat.
Speaker 1 (41:38):
Do you also buy the equity of the c l O.
Speaker 2 (41:40):
I think it's it's very very attractive. We if if
if if client, if we have a portfolio where specifically
it's designed.
Speaker 4 (41:53):
To own c l O equity and that kind of.
Speaker 2 (41:56):
Risk reward profile, you know, we we we we own it.
But I would say in most of our portfolios, you know,
again we're we're looking for fixed income investments. We're looking for,
you know, coupons. We're looking for a security that pays
us back part at maturity or earlier. So as much
(42:17):
as I like CLO equity is an asset class for
most of our strategies, it's not an appropriate investment and
doesn't really make sense in terms of the client mission
or their guidelines.
Speaker 1 (42:31):
Okay, interesting, I was at a conference earlier this week
on clos and it was jammed, you know, packed record attendance,
and everyone was talking about, you know, taking on as
much risk as possible give, giving you a macro view
that you think, right's all coming down. You see them
a little bit more on the on the more bullish
side about credit. Do you worry it's told Michael about
Froth about signs of you know, potential over exuberance in
(42:55):
this market.
Speaker 2 (42:56):
Yeah, I mean I worry about a lot of things, James.
I guess that's the that's that's that's the job at hand.
I would I would say this again, I mentioned this earlier.
You know, I would love spreads to be wider than
they they currently are. But I don't look at spreads
and say we're in an exuberant territory. To me, the
(43:18):
spreads that that we see today are are consistent and
makes sense with the strong fundamental backdrop. So so I
I don't feel like we're you know, we're we're we're
at a point where you know, we're not seeing bubble
like behavior.
Speaker 4 (43:37):
But you need to watch it closely.
Speaker 2 (43:39):
Obviously, you know, our our we we've always believed that,
you know, we we spend a lot of time doing
our our fundamental work and it's not just how to
fundamentals look today, but it's it's how to fundamentals how
how do we think they're going to look and evolve
over the next two to three quarters. And we usually
(44:00):
do start to see if if anytime we've had a
recession or a meaningful pullback and credit or meaningful widening
I meaning meaningful draw down and credit, which is usually
consistent with a recession, but anytime we've had that in
the market, it usually comes with some kind of fundamental
(44:20):
fraying or fracturing in corporate credit. So we feel like
we're in a we have a nice vantage point and
that we you know, through our through our bottom up work,
we tend to see a lot of the early indicators
that that tell us where the economy is going. So
you know, if if we were to start to see
some of these signs that perhaps see you know that
(44:42):
you're starting to see stress show up in certain segments
of the economy, I think we're in a pretty good
position to react to that. And if spreads were you know,
staying unchanged in that type of environment, you know, obviously
we we'd react, and we'd we'd react quickly. But again,
right now, you know, I'm just not seeing you know,
(45:04):
that type of froth in the in the corporate credit market.
Speaker 4 (45:07):
I think the you know, love them to be cheaper.
Speaker 2 (45:09):
But I think, you know, the valuations that we're looking
at today look reasonable relative to the strong fundamentals.
Speaker 1 (45:17):
But you can't rule out some kind of volatility event
for example, you know, geopolitical or even you know, US
election related that suddenly throws everything for a loop and
would feed through to spreads, right, I mean, how do
you hedge against that?
Speaker 2 (45:29):
It's hard, you know, geopolitics is always a really tough
one too, you know, to to think about, because you
have two things that you have to be.
Speaker 4 (45:39):
Able to predict.
Speaker 2 (45:39):
One is the event itself, and then secondly, what is
the market reaction to the event. And we do a
lot of stress testing with our portfolios. We you know,
create different scenarios and then you know, use our specialists
to come up with what we think the mark market
reaction would be. So, for instance, and elevated an elevation
(46:02):
of of of of the crisis in the Middle East,
and you know, we will say, okay, well what should
happen to oil? Where we'll spreads go? You know, everything
from triple A all the way down to triple C.
We stress test our portfolios. But again, you know, you
have two variables that you're playing with there, You're you know,
the the event itself and then the market reaction. So
(46:26):
I do worry about things like that, and we do
try to place probabilities on those, and we do try
to to build in, you know, some some diversifiers into
all of our portfolios that would give us a little
draw down protection. You know, a lot of times you
can't prevent the draw down, but you can dampen it.
(46:50):
And so that that that's the reason we do a
lot of that stress testing. But it's complicated and it's
it's tricky to get right. On the election side, I
think this is a interesting election. I mean, everyone it's
an interesting election. I don't know if we've ever seen
anything like this before. But you know, again, I always
try to boil it down to markets. And if you
think about it, the two candidates in terms of their
(47:13):
platforms are you know, they're usually economic policies is front
and center, and we're talking a lot about economic policy
as we get closer and closer to election. That really
doesn't seem to be the case here. You know, this
is going to be an election about you know, it's
about personalities, it's about social issues, it's about borders. You
(47:35):
really haven't heard that much on policy, And I guess
the one thing I would say is that we've had
a preview to some extent of both of these candidates.
Speaker 4 (47:45):
Both have been presidents.
Speaker 2 (47:47):
We have seen some of the economic initiatives that have
been stressed during these presidencies. So you know, from an
economic standpoint, it's perhaps a little easier to gauge and
and I think the market perhaps is filtering that in
and you know, you're not seeing as much elevated risk
(48:08):
or concern as it relates to economic policy with these
two candidates.
Speaker 1 (48:13):
Great stuff. Michael Muchannan co chief investment officer at Western
Asset Management. It's been a pleasure having you on the
Credit Edge.
Speaker 2 (48:19):
Well, thank you, James, and thank you Steve. I really
appreciate the opportunity.
Speaker 1 (48:23):
And of course to Steve Flame with Bloomberg Intelligence, thank
you so much for being on the show.
Speaker 4 (48:27):
Thank you.
Speaker 1 (48:28):
Check out all of Steve's excellent analysis on the Bloomberg Terminal,
and please do subscribe wherever you get your podcasts. We're
on Apple, Spotify, and all other good podcast providers, including
the Bloomberg Terminal. Give us a review, tell your friends,
or email me directly at Jcroumby eight at Bloomberg dot net.
I'm James Crumby. It's been a pleasure having you join
us again next week on the Credit Edge.
Hello, and welcome to The Credit Edge, a weekly markets podcast.
My name is James Crumbie. I'm a senior editor at Bloomberg.
This week, we're very pleased to welcome Michael Buchanan, co
Chief investment Officer at Western Asset Management. How are you, Michael.
Speaker 2 (00:30):
I'm doing great, James, and appreciate you having me on.
I'm looking forward to this.
Speaker 1 (00:35):
Thank you so much for joining usday. We're excited to
dig into your market views and the outlook. Also delighted
to welcome back Steve Flynn with Bloomberg Intelligence. Great to
see you again, Steve.
Speaker 3 (00:44):
Great, thanks for having me James.
Speaker 1 (00:46):
So just to set the scene a little bit here,
credit markets are coming under pressure as government yields keep
going up, but corporate bond spreads are very very tight,
so you're not getting very much compensation for the risk
of default or downgrade. Data on the US economy and inflation, meanwhile,
are coming in heart pushing yields even higher, making corporate
bonds look more attractive than they have done in years.
(01:07):
So demand is high and there are some signs of
froth in the marketplace, which I hope we will get
to a bit later in this show. At the same time,
we're seeing record levels of bond issuance and loan issuance.
There's also a boom in private markets asset based finance
and structured debt. Like clos, treasurers and CFOs have a
lot of options open to them, assuming they are happy
paying these higher rates. All this bullishness those seems founded
(01:31):
on a belief that the US economy will avoid recession.
Earnings are solid, most companies can afford to pay the
much higher borrowing costs, and everyone is in a good
place in terms of corporate America. On the other hand, though,
there seems to be quite a lot of worry about
commercial real estate, war, geopolitics, elections, and there are some
(01:51):
signs of balance sheet deterioration. Defaults and bankruptcies are ticking up. Meanwhile,
total returns are getting hammered by the rising treasury yields.
So on that notes, Michael, what do you make of
all this? Is it still the year of the bond
or the golden age for credit? As people keep telling us,
what's your view?
Speaker 2 (02:08):
Yeah, James man listening to that, It's definitely a complex picture.
And I guess what I would say is that to
answer your question, yes, this is in our view, this
is going to be a really good year for fixed
income in general twenty twenty four, but also in particular
for corporate credit. We're pretty excited about that. We've really
(02:32):
been struggling, and you know, I think every one of
those insights that you brought up in your introduction is
something that contributes to one of these two forces. Basically,
we've had the macro environment, which has been a headwind
for credit, meaning rates going higher, central banks, you know,
(02:52):
leaning into restrictive policy. That's just been a big headwind
for anything in fixed income. But the flip side is
that a lot of these spread sectors, corporate credit, you know,
investment grade, high yield, if you look at the underlying
credit quality and you look at fundamentals, it's generally been
pretty supportive. You know, companies are performing well, and so
(03:17):
you see you know, spread behavior that's that's been contained
and well behaved. So you put it all together and
you kind of have these two conflicting forces. But what
it's translated into is, you know, reasonable returns to date
for credit investors, but they're doing that in the face
(03:39):
of increasing interest rate environment. And what we think is
going to happen in twenty twenty four here at some point,
and you know, we'll probably get more information today, but
at some point you're going to see the FED and
other central banks down shift from what we currently think
is restrictive policy to something either a little more neutral
(04:02):
or perhaps even a little more accommodative as the year
moves forward, and ultimately that will create a nice tailwind
for fixed income investors.
Speaker 1 (04:14):
Listening to this later on in the week, for example,
I mean we are talking May first, the FED is
about to speak. Everyone is really very focused on rates
at the moment. I have to ask Michael, what's your view.
I mean, we've started the year thinking about six rate
cuts for this year. Now we've gone to zero, maybe
even a hike.
Speaker 2 (04:31):
Yeah, I think you know again, well, I think the
first few months of the year were a bit of
a surprise because the FED had signaled that, you know,
they believe that the data was coming in favorable in
terms of inflation going towards their two percent target, you know,
in the communication from the FED late in twenty twenty three.
(04:54):
The market believe that that would open the door for
a number of cuts, like you said, maybe even six
or seven and then the data that's come in year
to date, for the first few months has been hot,
and you know, that's been a challenge for the FED.
And that's you know, all the way down to now,
I believe you know, about one hike or one cut
(05:15):
is priced in for the year. We still think cuts
are on the table. We think the FED is still
going to lean in that direction. I think they're waiting
for the data to give them some validation of that.
And you know, I think the the the bar for
actually going back and pivoting the other way for hiking
(05:38):
is quite high. So I know the market you're hearing
a lot of views about cuts versus hikes. Our general
view is that the bias is still towards cutting. The
FED wants that they do believe current policy is restrictive.
If you just look at where they think ultimately the
long term rate is going versus where current rates are.
(06:01):
You know, they would call that restrictive policy. So they're
waiting for the data to give them some confirmation. We
think ultimately they'll get that in the next few months
and that should clear the way, you know, for at
least one or two cuts in twenty twenty four.
Speaker 3 (06:16):
Hi, Michael again, this is Steve Flynn, senior credit analysts
with Bloomberg Intelligence. Question. So you said you think there's
a bias towards cutting. I'm just swordering your view on
the economy. It's interesting if you look at the ec
FC function on Bloomberg, which is the probability of recession
based on like, you know, thirty contributors to Bloomberg, It's
(06:36):
now at thirty percent, and this is down from about
sixty five percent a year ago. So it seems like
the overall market is really seeing a much lower chance
of recession. Do you think that could have any impact
on your view for potential cutting.
Speaker 2 (06:51):
I think it definitely plays into it. You know, you
go back a year, a year and a half ago,
and I think the general consensus was that a recession
was you know, almost unavoidable, and you know a lot
of times and I think the Fed even probably was
thinking the same thing. You know, the Fed doesn't always
(07:15):
get it right in terms of their prediction in terms
of where the economy is going to be. I do
think the soft landing camp, which is the camp that
we're in, I think you know that that's the right
path forward and the most likely path forward. For the economy.
But it's certainly it's not a certainty. And you know,
(07:39):
I think that thirty percent number that you suggested sounds
about right. That's when we do our analysis at our
macro committees. You know, again, soft landing is our most
likely scenario. Maybe we're a little different in that we
think the next most likely scenario is actually growth surprises
(07:59):
to the down side, and you know, we could slip
into a mild recession. We think the odds of any
kind of significant or severe recession are very low, just
because the corporate sectors in such good shape. Consumer balance sheets,
even though savings have been depleted, consumer balance sheets are
still healthy. So you know that that's the way we're
(08:22):
seeing the big picture. But but I think that's about right.
You know, you know, the thirty recession, you can't roll
it off the table. But I think it's a it's
it's not the base case, and it's it's a lower probability.
Speaker 1 (08:33):
Isn't any kind of recession though bad for credit? If
you look at spreads, you know history of spreads, I mean,
they should be much much higher even you know, even
if there isn't a recession, Mean, what do you make
of the spreads right now.
Speaker 4 (08:42):
Yeah, I think you're You're right, James.
Speaker 2 (08:45):
I mean it's it's you look back historically, and anytime
you have a recession, even if it's a mild recession,
you're going to get spread widening. And given where spreads
are right now, they look full, you kind of go
back and you look at historical spreads for the investment
grade market or the high yield market, and it's really
(09:07):
hard to argue that that that you know, we're not
trading through historical averages. The reason that we're still constructive
on corporate credit and we still think that owning, whether
it's high yield or investment grade, you're going to do
well in that asset class. For twenty twenty four is twofold. Again,
we think the odds of a recession are fairly low.
(09:30):
We think, you know, the odds of a simply slower
growth from where we are now is the most likely path.
And we also would say this that you know, you
can't just look at spreads in isolation and draw conclusion
from that. You can't say that you know the high
yield market, you know, for instance, historically has you know,
(09:53):
traded at four hundred over just making these numbers up.
You can probably you know, depending on any time period
you want, you can come up with different estimates. But
you know, let's say historically the high marks trade at
four hundred over. It's a three hundred over now, therefore
it must be rich. You really have to look at
the intersection of fundamentals and valuations, and when we do that,
(10:15):
we would say that that valuations are quite strong or
I mean fundamentals are quite strong right now, even I
would say uniquely strong and actually justify or validate where
spreads are. So I think going if you're let's say
we are going into a recession, I think at least
(10:38):
the corporate sector is in a good position fundamentally to
endure and be resilient through a recession. And also from
a strategic standpoint, we have migrated our credit book a
little more towards higher quality, with the thought being that
overall yields are pretty high, they're compelling. You're going to
(10:59):
do well with the income carry and the overall yield
you get from owning corporate credit right now, so you
don't necessarily need to take incremental risk, let's say, and
get in, you know, go into higher beta or lower
rated corporate credit. If you're in high high yield, you
can simply hang out in the sort of double bees
single bees. And if if we do slip into a
(11:22):
mild recession again, you you should be able to be
a little more resilient there. You will get spread widening,
but it'll be a little more dampened then you might
otherwise experience if you're in something you know, a higher
beta triple C for for instance.
Speaker 1 (11:38):
I do want to get into the sort of specifics
of your portfolio in terms of sector and rating, But
before that, I do want to go back to this question.
I mean, it just puzzles me, and especially like talking
to people that have been doing this a long time,
like like you, Michael, it's it's you know, it's such
a small like the spread in a in a corporate
bond is such a small percentage of the yield. Obviously
the yields inflated by the treasury haven't gone up, but
(12:01):
it's the smallest percentage since two thousand and seven. And
we all know what happened next there. But does that
not concern you in the slightest bit. I mean, you know, textbook,
it should be compensating you for the risk of corporate
versus government.
Speaker 4 (12:14):
Right, yeah, no, it's James. It's a really good point.
Speaker 2 (12:17):
And I would say as a credit investor, of course,
we always want more spread, you know, all else being equal,
you know, we're happier when spreads are wider, when we're
you know, getting more incremental compensation for taking that credit risk.
So I'll just I'll say that, but you know a
(12:38):
lot of times the market just doesn't give us a
really easy choice like that, where you know you'll have
the you know, the combination of really good fundamentals, which
again that's kind of the way we're seeing the market
right now, very good fundamentals and very generous spreads. Right now,
I would say we're getting we're getting the combination of
(12:59):
healthy fundamental good fundamentals, you know, not just how they
look today, but when we do our analysts work and
we look forward over the next two to three quarters,
we see those fundamentals continuing. So we're getting that healthy backdrop.
But then the bigger challenge really is that you know,
you'd like to get more compensation, you'd like to get
(13:21):
more spread for that. So what it translates to for
us is that you know, corporate credit is at maybe
fair value, reasonable value. You know, I do think that
if you think there's some other drivers that you need
to think about, especially in the investment grade market. But
(13:43):
this even filters into the high yield market, and that
is you know, we'll go all the way back to
the two thousand and with the Corporate Credit Facility, when
the FED announced the corporate Credit Facility and introduced corporate
(14:04):
bonds into their their their their arsenal and started buying
corporate bonds that had never been the case before. So
they do have that in their toolkit as well, so
so kind of keep that in mind. It's it's something
that you know, if we were to go to a
period of significant draw down, the FED and now other
(14:25):
central banks have that in their their toolkit, they will
and have shown the ability and the willingness to buy
corporate credit.
Speaker 3 (14:34):
So, Michael Steve, again you're talking a little bit about
high yeld if we dig a little deeper and mentioning spread.
I mean, one sector that trades very, very wide is
the communications sector r it's by far the widest sector
in high yield. I don't know how you think about
that sector. Obviously, there's a lot of changes going on
there with you know, high competition for broadband, and you know,
the changing the way people consume media. But do you
(14:57):
see that as a sector where you worry about defaults
or or are you attracted by the you know, the
high spread and potential out for outperformance.
Speaker 4 (15:05):
Yeah, you know, Steve, you're you're right.
Speaker 2 (15:07):
I mean, that is a sector that is definitely within
scope right now. It's one of the cheapest sectors in
the high yield market for for good reason.
Speaker 4 (15:19):
You know, certainly there's.
Speaker 2 (15:20):
We all know about cord cutting, the fundamental pressure that
a lot of these these companies are are experiencing. If
you look at the transaction multiples, you know, cable wireless,
you know that used to trade it really fancy multiples
in terms of enterprise values. You know that's come down dramatically.
(15:42):
But at the end of the day, you know, these
companies are still generating a tremendous amount of cash flow.
Speaker 4 (15:48):
If you look at you know.
Speaker 2 (15:50):
Each one there, you know they still have subscribers that
are paying monthly bills. There's a lot of cash flow
to work with. You look at where valuations are right now.
You know, in many cases you're talking bonds that are
in the thirties, forties, fifties. You know, it's just been
(16:13):
a sector that's been under a tremendous amount of pressure.
Some of that is fundamental, some of that is due
to liability management exercises that have become increasingly popular in
the high yeal market and also kind of presenting ongoing risks.
Speaker 4 (16:31):
Sort of a different topic, and I won't venture too.
Speaker 2 (16:34):
Far into that right now, but steve to kind of
cut to the chase.
Speaker 4 (16:39):
We like that that sector right now.
Speaker 2 (16:43):
Communications in general, we think that the relative value is
heavily skewed in favor of investors. Not without risk, for sure,
you know you need to be very careful, but again
I think that's it's we're always looking for those types
(17:03):
of businesses where you are getting stable, consistent, reliable, predictable
cash flows, and we do think in general communications as
a sector offers that. And again, valuations where they are,
we think are are quite compelling.
Speaker 3 (17:20):
And given that you as co chief investment officer looking
at both investment grade and high yield. I mean, one
of the big names that pops out is Charter right. Charter,
you know, it's been under some pressure, it has some
things going on, but you know it has seventy billion
dollars of secured bonds and loans that have two of
the three rating injuries as investment grades. So I think
(17:41):
it's it's really really important for Charter and maintain its ratings. Right,
you cannot have that much debt drop into high yield.
It's Charter's unsecured bonds already the biggest name in high yield.
So they've made now an adjustment to their preferred net
leverage ratio. Right, they had always say a target of
four to four and a half times consolating that leverage,
(18:01):
but have always operated at the high end of that range,
and now they're going to move towards the middle of
the range, which is positive progress. Is that a name
you worry about a lot? Is that something you're comfortable
now with their slight change in the preferred leverage target?
Speaker 4 (18:16):
We we we do like Charter.
Speaker 2 (18:18):
We we we've got you know, we've we've been a
supporter of Charter for for quite some time. Again, a
lot of that relates to the specifics of the business.
But again I would I always you know, at Western Asset,
we always try to bring it back to relative value.
(18:38):
And when we look at where Charter trades, and you
kind of have an opportunity. If you want to stay secured,
you can be in the investment grade portion of the
capital structure. If you want to take a little more risk,
you can go into the unsecured portion of the of
the charter capital structure. So there's kind of something for
everyone there. But we do we we do like it
(19:03):
right now. We wish they'd be maybe and and maybe
they're moving in this direction a little less shareholder friendly,
a little more you know, bondholder vigilant or bondholder focused.
And and I think when you have, like you mentioned, Steve,
two of three ratings that are that are I G.
There is a there is a big gap still between
(19:26):
how a triple B company issues versus how a double
B company issues, just in terms of the cost of funding.
And and you know, Charter management smart, they know that
they're cognizant of that. So our belief is that you know,
they will do what they need to do to keep.
Speaker 4 (19:44):
That investment grade rating.
Speaker 2 (19:46):
As you mentioned, seventy billions, it's a lot of it's
a lot of debt. You wouldn't want to see that
drop into the high ual market. But if it did,
and I and I don't think it will, but if
it did, it's not unprecedented. We've gone through peer of
that before. I mean, the energy crisis in twenty fifteen
sixteen really almost you know kind of you know, for
(20:11):
for two or three years, you know, you just had
a number of downgrades that were coming into the high
yield market, and the high yeld market did a pretty
good job of absorbing that. That supply wasn't without disruption,
there wasn't some price there, It wasn't without price discovery.
But the high old market is you know, it's a
(20:32):
it's a much bigger market now than you know what
it was ten fifteen, twenty years ago. It's capable of
absorbing that kind of supply. The only thing is, you know,
it's gonna it's gonna, like I said, be a period
of a little bit of price adjustment and price discovery.
Speaker 1 (20:49):
So you brought up relative value, Michael, Thank you for that.
It's one of my favorite topics. Whereas if you know,
you look around everything you're doing right now across the board,
you know, big firm, big mandate, where is the best
relative value for you?
Speaker 4 (21:04):
Yeah?
Speaker 2 (21:04):
So I it I manage a strategy that that's called
multi asset credit. And the fun thing about that strategy, James,
is that it doesn't have a benchmark. It allows you
to have the autonomy and the flexibility to go where
where the best opportunities are and really emphasize and and
(21:24):
leverage off of that relative value analysis that that we
do here in the relative value analysis that that you're
talking about. So, I think some interesting areas right now.
We'll just kind of move off of corporate credit for
a second and move over to structured credit. And I
think within structured credit, commercial real estate is an interesting
(21:49):
area that our team has been allocating a lot of
a lot of resources on, a lot of focus on,
and we are finding opportunities there.
Speaker 4 (21:59):
And and I.
Speaker 2 (22:00):
Would say when people hear commercial real estate, they initially
think office real estate, and that's not necessarily what I'm
talking about. I think we office real estate. Most of
us are very aware of the challenges that market faces,
the overhang there. You know, we probably still have at
least a year plus of continued stress in that market. Eventually,
(22:24):
we do think you're going to find some opportunities there,
you know, like any market where everyone gets too aligned
in a negative way, you know, ultimately the pendulum swings
too far and it creates opportunity. But we wouldn't say
we're necessarily there yet, but it has created the overhang
of office real estate has created some vulnerabilities, or not vulnerabilities,
(22:49):
maybe some weakness in terms of valuations in other parts
of the commercial real estate market. So you know, industrial
real estate, think warehouses, storage, distribution centers. You know, that's
an area that's fundamentally working well and attractive. Hotel lodging
(23:10):
continues to.
Speaker 4 (23:11):
To do well. A lot of opportunities there.
Speaker 2 (23:14):
Even retail, I would say, is a is an area
where the there's there's opportunity and our our teams finding
some some compelling stories there is that.
Speaker 1 (23:28):
In terms of the actual loan, I mean you buying
those a discount. Now in the secondary how's that? How
how's that trading?
Speaker 2 (23:34):
There's there's both opportunities. The generic market where we're uh
executing a lot of these trades in is referred to
as just single assets, single borrower. But some of these
are on the secondary side, and and you know, if
you're patient, some can be on the on the primary side.
We are seeing, you know, the new issue volumes have
(23:59):
have ticked up a little bit there. So you know,
there there's a there's a little there's there's ways to
source in in both of those markets, James.
Speaker 1 (24:06):
Because the you know, general sense is that that's a
bit of a you know, an accident waiting to happen,
and there's a lot more to shake out, and you
know the banks are going to be under a lot
of stress because of it. But but you think it's
it's become cheap enough to become an opportunity for a
big asset manager. Let yours.
Speaker 2 (24:23):
Well, yeah, I'll differentiate between office real estate, which you
know is definitely it's it's experiencing, as we all know,
challenges related to occupancy. We think you're going to continue
to have you know, real pressure in that space. But
so I'm talking away from office real estate and more
(24:47):
into those other areas of commercial real estate, which again fundamentally,
you know, we do a lot of work on fundamentals,
and then it's not just corporate fundamentals, even in our
structured credit team, you know, bottom up fundamentals by you know,
by by region, by age of structure, just a lot
(25:08):
of a lot of fundamental work. But those those sectors
generally are are doing well and to your point, James
about the regional banks, I think that's a really good point.
We know that a lot of regional banks are carrying
a lot of commercial real estate, a lot of that office.
I think it's it's likely as we start to get
(25:29):
closer and closer to the point where a lot of
those loans are maturing or needing refinancing, we're going to
start to.
Speaker 4 (25:37):
See some some.
Speaker 2 (25:38):
Some stressed sales of of of real estate, of of
office real estate. And you know, again it's it's going
to get interesting. I think the good news is if
you you know, if you if you want to kind
of look at the glasses being half full, is there's
a lot of capital that's being raised to go after
those types of opportunities. You know, we're not the only
(26:01):
ones who think at some point you will see an
opportunity there. Opportunistic investors want to take advantage of those
when when they show themselves. So I do think you're
going to have a lot of private capital that is
ready to go to go after opportunities when they present themselves.
Speaker 3 (26:22):
Oh, Michael, I just wanted to ask you a question
about M and A. It seems that you know it's
a much tougher regulatory environment, you know, one example being
the recent FTC suing to block the Tapestry acquisition of Capri.
I was just wondering when a Western asset, when you
think about participating in company bonds that are participating in
M and A, do now put a higher likelihood that
(26:45):
a deal will not go through? Or with regard to
providing merger financing, do you need extra protections given the
higher risk that deals will not get approval?
Speaker 2 (26:54):
Yeah, so I would say almost We almost never would invest,
you know, uh, in a in a situation or in
a company based solely on our belief that a merger
will er or won't go through. That's always tricky. You
just never know how how that's going to play out.
(27:16):
You don't want to expose your clients to to to
regulatory risk. There's just a lot of things that can
happen behind closed doors that that you know, where we won't.
We don't really feel like we have a fundamental advantage there,
So you know, it's it's you just wouldn't find a
situation like that where we're going to be putting a
(27:36):
lot of a lot of faith or a lot of
capital to work based on a view that we think
an acquisition will or.
Speaker 4 (27:42):
Won't go through.
Speaker 2 (27:44):
What I would say is, you know, obviously, in our
in our high yield group, you know, the the l
b O part of of M and AS is plays
a big role. And you know, sort of two observations
or two takeaways that I have about.
Speaker 4 (28:00):
You know, the bigger question you just said.
Speaker 2 (28:03):
One is we really haven't seen a lot of l
b O s lately, that the volume is really quieted
down or and maybe some of that is exactly what
you said, you know, due to regulatory reasons, but it
is having an impact on the bank loan market. The
bank loan market's been a big financer of leverage buyout
(28:25):
transactions and there just haven't been hasn't been a lot
of supply there, which is actually creating a bit of
a favorable technical in the In the bank loan market,
you're continuing to see clos that are that are that
are being called so that's taking you know, that's taking
(28:45):
loans out of the market. You know a lot of
companies continue to do refinancings or paydowns. So you combine
that with supply that used to come up a good
pipeline of supply that used to come from the LBO
market that we haven't just seen that much. It's creating
a decent fundamental in bank loans. And the other thing
(29:13):
too again, and I mentioned this earlier, but the liability
management exercises that we're seeing so many of in the
highild space as well in the bank loan space, a
lot of those are being created because of the documentation
(29:33):
that was done, particularly in twenty twenty one, in twenty
twenty two. So I think as leverage buyouts start to
gain traction again, you know, in the coming quarters, in
the coming years, I think investors in both the bank
loan space as well as the public high yield market
are going to be more vigilant in terms of tightening
(29:55):
up the covenants, tightening up the flexibility those covenants allow
that have really brought about this dramatic increase and liability
management exercises or coercive exchanges, the so called creditor on
creditor violence.
Speaker 4 (30:13):
Yeah.
Speaker 1 (30:13):
I mean, as you said, a lot of those liability
management exchanges aren't being done particularly on particularly in fair
terms for the investors. How do you handle that? I
mean you must be getting burned on some of these deals.
Speaker 2 (30:23):
Well, I think you you know, it's any capital structure
that's trading at a deep discount to par you have
to think is vulnerable to these types of of of
of exercises, these types of coercive exchanges. The best way
(30:44):
to combat that is one, you know, you do, I
think have to have a very credible.
Speaker 4 (30:54):
Workout effort.
Speaker 2 (30:56):
You know, we we have dedicated professionals that actually work
with other creditors, work on creditor committees, are in constant
contact with legal and financial advisors, uh, trying to one
get insight on you know, which companies might be vulnerable
to these types of exercises. But when they do take place,
(31:19):
and it would be very hard this year to kind
of miss all of those again, they're there are just
so many in the in the high yal market, but
when they do take place, to make sure that, you know,
we're coordinated with other creditors where uh, to the extent
possible and where it makes sense, linking arms with other
creditors to fight back and and and and do everything
(31:43):
we can to preserve underlying asset value and ultimately avoid impairments.
So I do think, you know, we've we're fortunate in
that we have that type of team here. We have
that type of effort, you know that that proactively works
with a lot of other creditors to to work in
the best interests of our clients and other bondholders. It's
(32:05):
a it's a tough one though, James. I mean, you
know again, we're it's it's a it's a reality in
the in the high Yueld market. We're seeing it more
and more and again that is why I believe that
going forward you will start to see more scrutiny on
on covenants and tightening up on on general covenants that
(32:26):
will be favorable ultimately for the high old market.
Speaker 1 (32:29):
Another dynamic that you kind of brought up was private capsule,
which is such a hot topic at the moment. I mean,
it's it's grown so quickly. I I've told someone recently
about the covenants that they are getting worse volumes of
picking up every Everyone's very excited. It just I mean,
having done this for what it just looks like what
(32:49):
leveraged loans were about twenty years ago. But what's the excitement,
Michael White's what's the buzz?
Speaker 2 (32:55):
Yeah, Well, private credit definitely has has been very popular
and if you think about it, it makes sense. Coming
out of the global financial crisis. You know, a lot
of the bigger banks were stepping away from lending to those,
you know, small to medium sized corporations. So in that
(33:15):
void stepped managers who were willing to offer those types
of borrowers money at attractive rates. You know, and and
and obviously the trade off is, you know, you for
for less liquidity. So if you're investing in private credit,
you know, it's not the day to day liquidity that
(33:37):
we enjoy in the in the public markets, so you're
getting less liquidity. But the flip side of that is,
you know, you were getting incremental spread, you were getting
enhancements to structure, you were perhaps getting better collateral. So
it really resonated with with a lot of investors. They
were willing to give up that liquidity in order to
(33:57):
get these other enhancements that I just mentioned. But you know,
the market's become very popular. It's grown very quickly. By
some estimates, the private credit market now is.
Speaker 4 (34:10):
The same size as the.
Speaker 2 (34:13):
Syndicated loan market as well as the high yield market.
I do think it's a it's a it's a good
thing when you step back and think about the big picture,
you know, companies now have more avenues or more paths
to finance in the market. It's not just a high
yield in the loan market, but it's it's private credit,
(34:34):
and that ultimately should lead to more financial flexibility and
perhaps even lower defaults on a longer term basis. So
I do think there's there, there's there's there's definitively a
good positive that has come from private credit. But like anything,
you know, it's the more money that has gone to
(34:54):
that market, the more competitive it's become, the more spread
compression you've seen, there's just more competition for for more deals.
So so I do think if you were to, you know,
look at the amount of compensation you get for owning
private credit versus public credit, that spread, which toggles over
(35:15):
the years and you know, expands and contracts, strikes me
that we're we're more on the tighter side there than
what we've what we've seen over the past ten.
Speaker 4 (35:25):
To fifteen years. But I do think it's it's it's interesting.
Speaker 2 (35:30):
I do think you're going to continue to see you know,
a lot of people talk about this dis intermediation between
public markets and private markets. We very much believe that
we see that, you know, that rigid line between what
is private credit and what is public credit that is
really started to blur, and it's just not so clear
(35:51):
now that you know your your private credit managers are
specifically going to stay within the clear crisp domain of
private credit and public managers like ourselves are you know,
managers of public debt generally, we're also you know, looking
at and incorporating more and more private like transactions into
(36:14):
our client portfolios.
Speaker 3 (36:16):
Michael, I just wanted to follow one last question on
your potential to see a greater amount of liability management
exchanges in the high yield market. Right when I think
about the communications sector, I could think of, you know,
several potential candidates as we look over the next couple
of years. So when Western Assets considering participating in an exchange,
(36:37):
is it you know, nobody likes to take a haircut
to their principal ode, right, but are you guys, are
you principle is Western okay with doing that if you're
going to be in a better position within the capital
structure and the company has a much more manageable debt
load going forward? Is it that simple to think about
it that way?
Speaker 4 (36:56):
It's it's a it's a it's it's the right question.
You know.
Speaker 2 (37:00):
Obviously, when we initially make a loan, we we expect
to get our coupons and we expect to get paid
back par you know, at maturity or earlier. But you know,
as as companies, you know, go about the the you know,
their their normal path of business. You know, conditions can change,
things can change, and a lot of times it you know,
(37:23):
we we end up with a with a company that
is in a challenged situation. And and again that's really
where these liability liability management exercises are happening. They're not
happening with companies that have bonds that are trading at
or near par. They're usually happening with a company that's
witnessing some stress. So our willingness to engage in an
(37:49):
exchange is really you know, it ultimately boils down to
what's in the best interest of our of our client.
You know, we look at the the current condition of
the company, what are our options that are on the table,
and really try to to to extract the best decision
given that type of information. So you know, I would
(38:15):
say we're we're we're very resistant if we have to
or we're very resistant to taking impairment. But if it's
a situation where you know, let's say bonds are already
trading at thirty or forty cents on the dollar, and
we think that there is likely impairment down the road,
and we can be involved in an exchange and by
(38:37):
doing so increase the underlying collateral that we have, increase
the ultimate recovery that we have for our clients. But
perhaps that comes with taking some impairment. I think we'd
be willing to do that. So it's you know, every
situation's a little different, and I don't think you could
ever say, you know, no, we won't, we won't ever
(38:58):
do an exchange. You know, we'll never take impairment to par.
You always have to look at the situation at hand
and what's in the best interest in how do we
maximize recovery for for for our clients.
Speaker 1 (39:10):
So, going back to an earlier question, Michael, interns of
relative value, I mean, I'm guessing you look globally as well.
You know, what's what's the thing that gives you the edge,
you know, besides real estate, besides structure, credit, is there
anything else that's giving you extra return at the moment.
Speaker 4 (39:26):
Yeah, you know a few things.
Speaker 2 (39:30):
You know, a local currency, emerging markets, you know that
we think that a few cdiosyncratic, but you know quite
a few of those situations India, Mexico, Brazil, all in
local currency.
Speaker 1 (39:45):
Is that corporal or sovereign that's sovereign, okay?
Speaker 2 (39:49):
And again local currency, so you know you are taking
you know, an element of currency risk. But nominal rates
are very high, and you know, again we think that
when you compare real rates in those economies I mentioned
versus develop market real rates, they look pretty compelling to us. Also,
(40:11):
you know, I've kind of we talked a little bit
about levered loans, but but perhaps a sister of the
loan market is clos and I think I've mentioned it earlier,
but clo tranches. So the idea that you know, taking
a collateralized loan obligation and the tranches that are created
from that transaction, to us, those look very attractive and everything.
(40:35):
You know, they're from triple A all the way down
to you know, the more mezzanine tranches double bs. We
think relative to the rating and relative to the structural
integrity of each one of those trenches, and how well
we feel that they'll hold up through periods of stress.
We think that those are those are quite compelling. You know,
(41:00):
over time, we think you are going to see spread compression.
For you know, a c l O UH tranch of
a specific rating versus how a corporate bond with the
same rating trades. Right now, there's a very generous gap.
Speaker 4 (41:14):
You know, if you own a see it.
Speaker 2 (41:16):
Let's say, you know, triple B c l O tranch
versus a triple B investment grade credit. There's a very
there is a very big yield gap there. Over time,
we think that you will see that that spread compression
and you'll see c l O tranches by the same
rating trade you know, certainly not at the same spread
as the corporate issuer, but but you know that gap
(41:36):
should tighten up somewhat.
Speaker 1 (41:38):
Do you also buy the equity of the c l O.
Speaker 2 (41:40):
I think it's it's very very attractive. We if if
if if client, if we have a portfolio where specifically
it's designed.
Speaker 4 (41:53):
To own c l O equity and that kind of.
Speaker 2 (41:56):
Risk reward profile, you know, we we we we own it.
But I would say in most of our portfolios, you know,
again we're we're looking for fixed income investments. We're looking for,
you know, coupons. We're looking for a security that pays
us back part at maturity or earlier. So as much
(42:17):
as I like CLO equity is an asset class for
most of our strategies, it's not an appropriate investment and
doesn't really make sense in terms of the client mission
or their guidelines.
Speaker 1 (42:31):
Okay, interesting, I was at a conference earlier this week
on clos and it was jammed, you know, packed record attendance,
and everyone was talking about, you know, taking on as
much risk as possible give, giving you a macro view
that you think, right's all coming down. You see them
a little bit more on the on the more bullish
side about credit. Do you worry it's told Michael about
Froth about signs of you know, potential over exuberance in
(42:55):
this market.
Speaker 2 (42:56):
Yeah, I mean I worry about a lot of things, James.
I guess that's the that's that's that's the job at hand.
I would I would say this again, I mentioned this earlier.
You know, I would love spreads to be wider than
they they currently are. But I don't look at spreads
and say we're in an exuberant territory. To me, the
(43:18):
spreads that that we see today are are consistent and
makes sense with the strong fundamental backdrop. So so I
I don't feel like we're you know, we're we're we're
at a point where you know, we're not seeing bubble
like behavior.
Speaker 4 (43:37):
But you need to watch it closely.
Speaker 2 (43:39):
Obviously, you know, our our we we've always believed that,
you know, we we spend a lot of time doing
our our fundamental work and it's not just how to
fundamentals look today, but it's it's how to fundamentals how
how do we think they're going to look and evolve
over the next two to three quarters. And we usually
(44:00):
do start to see if if anytime we've had a
recession or a meaningful pullback and credit or meaningful widening
I meaning meaningful draw down and credit, which is usually
consistent with a recession, but anytime we've had that in
the market, it usually comes with some kind of fundamental
(44:20):
fraying or fracturing in corporate credit. So we feel like
we're in a we have a nice vantage point and
that we you know, through our through our bottom up work,
we tend to see a lot of the early indicators
that that tell us where the economy is going. So
you know, if if we were to start to see
some of these signs that perhaps see you know that
(44:42):
you're starting to see stress show up in certain segments
of the economy, I think we're in a pretty good
position to react to that. And if spreads were you know,
staying unchanged in that type of environment, you know, obviously
we we'd react, and we'd we'd react quickly. But again,
right now, you know, I'm just not seeing you know,
(45:04):
that type of froth in the in the corporate credit market.
Speaker 4 (45:07):
I think the you know, love them to be cheaper.
Speaker 2 (45:09):
But I think, you know, the valuations that we're looking
at today look reasonable relative to the strong fundamentals.
Speaker 1 (45:17):
But you can't rule out some kind of volatility event
for example, you know, geopolitical or even you know, US
election related that suddenly throws everything for a loop and
would feed through to spreads, right, I mean, how do
you hedge against that?
Speaker 2 (45:29):
It's hard, you know, geopolitics is always a really tough
one too, you know, to to think about, because you
have two things that you have to be.
Speaker 4 (45:39):
Able to predict.
Speaker 2 (45:39):
One is the event itself, and then secondly, what is
the market reaction to the event. And we do a
lot of stress testing with our portfolios. We you know,
create different scenarios and then you know, use our specialists
to come up with what we think the mark market
reaction would be. So, for instance, and elevated an elevation
(46:02):
of of of of the crisis in the Middle East,
and you know, we will say, okay, well what should
happen to oil? Where we'll spreads go? You know, everything
from triple A all the way down to triple C.
We stress test our portfolios. But again, you know, you
have two variables that you're playing with there, You're you know,
the the event itself and then the market reaction. So
(46:26):
I do worry about things like that, and we do
try to place probabilities on those, and we do try
to to build in, you know, some some diversifiers into
all of our portfolios that would give us a little
draw down protection. You know, a lot of times you
can't prevent the draw down, but you can dampen it.
(46:50):
And so that that that's the reason we do a
lot of that stress testing. But it's complicated and it's
it's tricky to get right. On the election side, I
think this is a interesting election. I mean, everyone it's
an interesting election. I don't know if we've ever seen
anything like this before. But you know, again, I always
try to boil it down to markets. And if you
think about it, the two candidates in terms of their
(47:13):
platforms are you know, they're usually economic policies is front
and center, and we're talking a lot about economic policy
as we get closer and closer to election. That really
doesn't seem to be the case here. You know, this
is going to be an election about you know, it's
about personalities, it's about social issues, it's about borders. You
(47:35):
really haven't heard that much on policy, And I guess
the one thing I would say is that we've had
a preview to some extent of both of these candidates.
Speaker 4 (47:45):
Both have been presidents.
Speaker 2 (47:47):
We have seen some of the economic initiatives that have
been stressed during these presidencies. So you know, from an
economic standpoint, it's perhaps a little easier to gauge and
and I think the market perhaps is filtering that in
and you know, you're not seeing as much elevated risk
(48:08):
or concern as it relates to economic policy with these
two candidates.
Speaker 1 (48:13):
Great stuff. Michael Muchannan co chief investment officer at Western
Asset Management. It's been a pleasure having you on the
Credit Edge.
Speaker 2 (48:19):
Well, thank you, James, and thank you Steve. I really
appreciate the opportunity.
Speaker 1 (48:23):
And of course to Steve Flame with Bloomberg Intelligence, thank
you so much for being on the show.
Speaker 4 (48:27):
Thank you.
Speaker 1 (48:28):
Check out all of Steve's excellent analysis on the Bloomberg Terminal,
and please do subscribe wherever you get your podcasts. We're
on Apple, Spotify, and all other good podcast providers, including
the Bloomberg Terminal. Give us a review, tell your friends,
or email me directly at Jcroumby eight at Bloomberg dot net.
I'm James Crumby. It's been a pleasure having you join
us again next week on the Credit Edge.
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