... overall?

You know, what's interesting is we are seeing deals get digested, right? Like, we haven't seen a hyperscaler deal fail to clear the market.

We haven't seen a high yield bond deal in the data center infrastructure space really have a massive failure as well.

Things are pricing at wider levels across investment grade and high yield.

So things are definitely getting digested, but the analysis that investors are having to run is, "Okay, I know more is coming.

What is the appropriate yield to compensate me today when I know-"

... or maybe gross slows?

Yeah.

But is it upgrades? Is it new entrants to the market with higher credit ratings? What's driving that, that shift in underlying credit ratings?

This is a really good one, and there are a few different factors that are really important in this change.

When we think about leverage finance, so the high yield market, and then add into it the broadly syndicated loan market and also the private credit market, you have a very different ecosystem now than you had, say, pre-great financial crisis in 2007, 2008.

It used to be that the high yield bond market was kind of ground zero for everything leveraged buyout related, for those kind of higher risk M&A transactions, for new companies that were new to the market and a little bit riskier.

Now, instead, the high yield bond market is kind of like the more responsible big sister who can largely get it done.

Every once in a while she might be out at a party too late, but for the most part, she's pretty trustworthy and, and can kind of maintain soundness in terms of decision-making and things like that.

Whereas the leverage loan market has been where a lot of the leverage buyouts have gone, where private equity firms have preferred to deploy capital and, and raise capital to do things like sponsor-to-sponsor merger transactions, and we've seen a lot more re-leveraging in the leverage loan space than in the high yield bond market.

So my question, 'cause I wanna focus on what does this mean for most individual investors, especially those focusing on, on the bond markets, do you see any potential spillover risk to the public markets, knowing that a lot of individual investors are holding, whether it's high-yield bonds or bank loans or bank loan funds? What's the risk of potential spillover?

How is the market dealing with this issuance? Is it being well digested so far?

Hey there.

Good morning, Paul.

So I would say it's a little bit of a mixed story as it relates to digestion of new issuance.

There are some deals that have done really well, uh, especially when we see long and high-quality deals.

Investors who are dedicated to just kind of buying that long-end yield are very happy to take down those deals, while on the other hand, there have been instances of pushback or kind of outright buyer strikes when we start to see deals from perhaps more storied issuers, uh, deals from sectors where we know that there is going to be a lot of issuance, like technology, to found, fund all of the AI build-out.

So I would say in general, the markets are holding in pretty well given the rush of new issue supply, especially in the investment grade world.

How are you guys thinking about that?

Do you think credit is basically unbreakable? Or why is the surge of issuance? What is going on behind all this?

All right.

I mean, there's a lot to unpack there.

And first of all, thank you for having me today.

I'm always excited to nerd out a little bit on credit markets, especially when there are things to talk about.

And there are certainly a lot of things to talk about lately.

When we talk about credit being unbreakable, I think that there are a couple of different facets here.

But if you mean, if it is strictest covenants or the structure is protected and your money is protected, it should be safer, no? Like, do you have to worry so much about it then?

At this point, do you think that investors just throw caution to the wind as soon as they see the word artificial intelligence in any kind of prospectus?

Mm-hmm.

Well, I think it's a little bit of a, a more nuanced view than that.

I think that people realize that AI is going to be a defining trend probably for the next five, 10, 20 years.

There's definitely sustainability and durability there.

But there are a lot of open questions as to the magnitude of return on investment, the timing of that.

And I think that people are looking at things like Meta bond deals, which is still a, a pretty high quality issuer, and thinking this seems like a reasonable pla- place to continue to put cash to work, especially because that, that new bond sale did come with a pretty significant new issue concession, which is something that a lot of investors have not been getting this year in the primary market.

You know, if all of that and spreads are barely moved, Whitney, what would it take to significantly and sustainably widen spreads at this point?

high yield.

Yeah, it's really interesting.

And we have gotten a little bit more comfortable with taking some duration risk within the treasury market.

We put that view out a couple of weeks ago as long end yields kind of spiraled to recent high levels.

They've come down a little bit since then.

Credit is a little bit trickier.

When we think about high yield especially, we're seeing very strong performance from higher quality high yield.

How do you think about credit risk here?