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Private credit is finally seeing some positive press for a change, with some outlets reporting signs of recovery as investors buy into high-yield bonds offered by business development companies (BDC).
BACKGROUND- It’s been a high-profile struggle for the private credit industry, with fears of a crisis brewing for some time now. The Financial Stability Board warned of risk mispricing and high default levels in the USD 2 tn sector last month, while 1Q saw wealthy investors pull more than USD 10 bn from funds, prompting managers to cap withdrawals. Software firms — a key target for private credit lenders — are also in the firing line from the AI boom.
However, bonds issued by BDCs have seen a wave of interest recently, with issuance hitting nearly USD 8.4 bn since the beginning of 2Q, after just USD 3 bn was issued in March, Bloomberg reports. ARCC’s USD 800 mn sale was 3x oversubscribed, and Blackstone’s flagship BDC’s USD 850 mn offering saw USD 4.3 bn in orders.
Behind the trend: Some are banking on BDCs’ commitment to repayment, with investors seeing the bonds as less risky than previously thought, according to the business news service. The risk premium on BDC bonds over US Treasuries has snapped back to levels last seen in February, with some analysts expecting spreads to tighten further.
Plus: Attractive yields could help give a boost to the sector. Man Group’s Chief Investment Officer Kevin Marchetti told CNBC that a spike in benchmark interest rates in the US on the back of an inflation uptick could lead to more attractive yields, especially for more disciplined lenders.
The bear case hasn't gone away, though. Underlying stressors remain — some BDCs face credit rating downgrades, and a possible mismatch between redemptions and fundraising looms. Heavyweights including Blackstone and Cliffwater are still capping withdrawals amid a wave of redemption requests.
MARKETS THIS MORNING-
Asian markets are overwhelmingly in the green this morning, likely on hopes of a potential US-Iran agreement coming soon.South Korea’s Kospi is leading gains, up 7%, while Japan’s Nikkei rose 3.4%. Meanwhile, Wall Street futures are also up as traders await SpaceX’s historic debut later today.
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ADX |
9,546 |
-0.3% (YTD: -4.5%) |
|
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DFM |
5,734 |
-0.4% (YTD: -5.2%) |
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Nasdaq Dubai UAE20 |
4,404 |
-0.6% (YTD: -9.9%) |
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USD : AED CBUAE |
Buy 3.67 |
Sell 3.67 |
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EIBOR |
3.4% o/n |
4.0% 1 yr |
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TASI |
11,042 |
+0.3% (YTD: +5.3%) |
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EGX30 |
50,819 |
-0.9% (YTD: +21.5%) |
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S&P 500 |
7,394 |
+1.8% (YTD: +8%) |
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FTSE 100 |
10,304 |
+0.5% (YTD: +3.8%) |
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Euro Stoxx 50 |
6,057 |
+0.8% (YTD: +4.6%) |
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Brent crude |
USD 89.40 |
-1.1% |
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Natural gas (Nymex) |
USD 3.08 |
-0.3% |
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Gold |
USD 4,226 |
+2.4% |
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BTC |
USD 63,398 |
+2% (YTD: -28.6%) |
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Chimera JP Morgan UAE Bond UCITS ETF |
AED 3.69 |
-0.5% (YTD: +0.6%) |
|
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S&P MENA Bond & Sukuk |
151.51 |
+0.1% (YTD: -0.3%) |
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VIX (Volatility Index) |
19.44 |
-12.5% (YTD: +30%) |
THE CLOSING BELL-
The ADX fell 0.3% yesterday on turnover of AED 1.2 bn. The index is down 4.5% YTD.
In the green: Ins. House (+9.2%), E7 Group Warrants (+5.3%), and Agility Global (+4.8%).
In the red: Rak Co. for White Cement & Construction Materials (-4.9%), Ooredoo (-4.5%), and Abu Dhabi National Energy Company (-3.4%).
Over on the DFM, the index fell 0.4% on turnover of AED 969.9 mn. Meanwhile, Nasdaq Dubai was down 0.6%.
