In our just-completed series on high-yield bonds [link], we conclude that issuer and investor activity has largely been driven by technical factors: near-zero interest rates, the Fed’s support of fallen angels, and skewed-to-worse ratings for leveraged loans.

If this is the environment in the liquid market, how should investors be thinking of the illiquid market, i.e. private credit?

By contrast, as followers of this commentary know, private credit follows a very different path to that of tradable assets. Fundraising has occurred in earnest around the notion that providing investors with steady income (and issuers with long-term credit solutions), regardless of market volatility, is a major benefit.

As our Chart of the Week shows, middle market senior secured loans demonstrate higher yields over time than other asset classes. And that data does not include 2020. Post-COVID spreads should widen relative to recent performance, thanks to economic uncertainty.