The Credit Edge by Bloomberg Intelligence

Fear of software defaults amid AI disruption creates opportunity for high-yield debt buyers, according to Capital Group, which has $3.2 trillion under management. “Markets are adopting a bit of a shoot first ask questions later strategy when it comes to software,” said Shannon Ward, a fixed income portfolio manager who serves on the firm’s fixed income management committee. “There’s going to be some baby out with the bath water when it comes to the sector — and that means bargains can be had,” she tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Steve Flynn in this episode of the Credit Edge podcast. They also discuss how Paramount Skydance will reshape junk credit, leveraged loan default risks and the broader impact of private market stress.
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Software default rates could hit double digits as AI disruption spreads and loans come due, according to Bain Capital. “We’re going to see real stress,” said Angelo Rufino, the firm’s head of special situations in North America and corporate special situations in Europe. “We will see a full credit cycle as the reckoning really comes to resize capital structures to the earnings power of these business models,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s David Havens in this episode of the Credit Edge podcast. They also discuss investment-grade private credit, data center debt and asset-based finance, including the rise of music-royalty deals.
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Systematic credit investing has room to expand into leveraged loans, structured finance and emerging markets, according to Acadian Asset Management. “You could take an issuer approach to do security selection in the leveraged loan market,” Scott Richardson, the $178 billion firm’s director of systematic credit tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Sam Geier in this episode of the Credit Edge podcast. “That could be extended to structured things that sit on top of that, CLOs and the like,” says Richardson, referring to collateralized loan obligations. They also discuss alternative data, private credit and how to build a portfolio “without giving a liver and a kidney to Goldman Sachs along the way.”
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Mortgage-backed securities look attractive even after government purchases snapped spreads tighter, according to Clark Capital Management. “I don’t think the trade is completely over yet because corporates are even tighter,” Oliver Chambers, head of fixed income for the firm’s separately managed accounts, tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Erica Adelberg in this episode of the Credit Edge podcast. “You can go in and clip a 4.5% coupon and have potential for some price appreciation if rates do come down,” says Chambers. They also discuss technology debt risk, the market impact of new leadership at the Federal Reserve and what the central bank would do if there’s a big selloff.
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Technology companies flooding debt markets are just getting started on funding a $4 trillion artificial intelligence boom, according to Bloomberg Intelligence. “This is the tip of the iceberg,” Robert Schiffman, BI’s senior tech credit analyst, tells Bloomberg News’ James Crombie in this special episode of the Credit Edge podcast. “A lot will depend on at what pace industries are embracing AI technologies,” adds Anurag Rana, a senior BI equity analyst who also covers the sector. BI expects AI capital expenditure to exceed $4 trillion in the US through the end of 2030. The trio also discuss the impact of surging bond issuance on credit spreads, the appeal of very long-dated debt in a sector susceptible to disruption and the biggest risks for this year.
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