Oaktree, TCW and Sona Spot Opportunity in Market Turmoil

Credit investors are looking to pounce on new opportunities resulting from the wild swings in global financial markets triggered by the US-China trade war. 

Average spreads in the US high-yield bond market are about 419 basis points — lingering around the highest since late 2023 — while prices in the leveraged loan market have dipped to below 95 cents on the dollar since President Donald Trump’s announcement this week that the US was raising the tariffs on Chinese goods to 145%. 

Speculative-grade companies with exposure to tariff-related costs — especially in the retail and energy sectors — have already traded down meaningfully and more pain could be on the way. 

That’s left some money managers looking to selectively add risk to portfolios. TCW Group Inc. has been adding high yield and bank loan exposure to every single portfolio that invests in those asset classes, according to Brian Gelfand, co-head of global credit and head of credit trading at the firm. 

“The market is running from credits with tariff-related risk,” he said. “There are going to be survivors in that cohort and we want to identify those and invest in them at improved prices.”

BlackRock’s Chief Executive Officer Larry Fink warned on Monday that most CEOs he talks to thinks the US is already in a recession while consumer sentiment plunged to the second-weakest reading on record. Airlines, food and drug stores and supermarkets have all seen falling sales in recent weeks, according to alternative data compiled by Bloomberg, while some customers appear to be swapping full-service restaurants for lower priced alternatives.

Higher incidences of distress and increased demand for financing from struggling companies means “we’re likely to invest our latest opportunistic debt fund faster than otherwise would have been the case,” Oaktree Capital Management Co-Founder Howard Marks wrote in a memo on Wednesday.

And another window of opportunity has came from broad asset-tracking and exchange-traded funds, freeing up chunks of debt for active managers. An estimated $6.5 billion was pulled from loan funds in the week ended Wednesday while US high-yield bond funds had their biggest weekly outflow in almost 20 years as investors yanked a net $9.63 billion, LSEG Lipper data show.

Traders were whipsawed by gyrations in the market with some frustrated that Wednesday’s rally put a halt to the buying opportunity, temporarily at least. One described trading in European high-yield bonds and leveraged loans as manic before that, with large volumes trading, while another said the bid-offer spread made buying anything of a meaningful size difficult to execute.

“The opportunity set has increased and we are in the process of drawing on capital to deploy into situations,” said Owain Griffiths, a partner at Sona Asset Management, an alternative asset manager. “We are constructive on the longer term. There are reasons to be cautiously optimistic on Europe when you consider factors such as the fiscal stimulus coming through from Germany.” 

The firm is looking at first-lien securities in less cyclical industries like telecoms, he added.

Meanwhile, Marathon Asset Management’s Chief Executive Officer Bruce Richards sees an opportunity to grow asset-backed lending as a “revenue recession” triggered by tariffs makes lending using metrics like earnings before interest, taxes, depreciation and amortization less attractive. 

Returns of 10% to 12% are possible on a net internal return basis, he said, adding that “our phones are starting to ring off the hook.”

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