🌍 PIMCO: A Growing Divide Emerges in Leveraged Finance
PIMCO's latest Credit Market Lens finds high yield bonds outperforming leveraged loans and direct lending, as BB-rated bonds hit a record 54% share (up from 30% in 2010) while BB-rated loans fell to 28%. Higher-for-longer rates and a post-COVID fundraising glut have weakened underwriting in direct lending, and software - the largest sector in both loans and private credit - faces AI-driven margin pressure. CLOs show early stress signs, with CCC-rated loan buckets nearing the 7% threshold in deals close to the end of their reinvestment periods. PIMCO favors HY bonds over loans given shorter duration, lower software exposure, and a more stable market size. For private credit investors, this signals rising dispersion and a need for manager selection as AI disruption ripples through sponsor-backed software credits.
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