Spotlight on David Rosenberg, Head of Liquid Performing Credit & Co-Portfolio Manager, Oaktree Capital Management
Global Thought Leader Spotlight
David Rosenberg, Head of Liquid Performing Credit & Co-Portfolio Manager, Oaktree Capital Management
In my role as the Head of Liquid Performing Credit and Co-Portfolio Manager at Oaktree Capital Management, I am responsible for the U.S. High Yield Bond, Global High Yield Bond, Global Credit Investment Grade and Global Credit strategies. I am also a founding member of the Global Credit Investment Committee, with over 20 years of experience at Oaktree.
Contextualising the macro and rates backdrop
The underlying economy appears to be holding up reasonably well. While significant geopolitical, trade, and fiscal uncertainty remains, markets have largely shrugged off these risks as concerns of a looming recession have faded.
While we don’t anticipate growth to fall off a cliff, a slowdown is likely in the second half of the year as consumers and businesses cope with higher prices and policy uncertainty. The labour market is holding up well for now, with unemployment still close to 4%.
However, the low unemployment rate is partly a function of the recent drop in the labour force participation rate. As such, the job market may be softening more rapidly than the headline numbers suggest.
Interest rate expectations have shifted toward a view that rates will remain elevated in the near term – at least through the remainder of the year. The market is currently pricing in 1-2 rate cuts before year-end. This aligns with our outlook. Importantly, the rate cuts previously expected in the second half of 2025 have simply been deferred into next year, with nearly five cuts still priced in before the end of 2026. We remain cautious about long end rates, where continued volatility could drive further curve steepening.
Healthy credit fundamentals despite headwinds
Credit fundamentals remain resilient. That said, forward-looking guidance from companies has become more opaque, as an increasing number of companies have been unwilling to make predictions amid all the uncertainty. We do think this uncertain backdrop is leading companies and consumers to hold back on spending. We run the risk that lower capital expenditures and decreasing consumption will create demand destruction, and on the back of this, we anticipate (1) slower growth and (2) greater dispersion between top- and bottom-end consumers. Thinking through direct tariff risk, sectors such as autos and steel are among the most vulnerable, while weakening consumption could also hurt consumer cyclical and hospitality sectors.
Despite these risks, corporate balance sheets remain fairly healthy, particularly for the high-quality borrowers that we invest in: leverage is low versus historical norms, interest coverage is healthy, and earnings are growing. Net issuance has been limited, with companies successfully refinancing their near-term debt resulting in limited upcoming maturities.
Spreads affirm favourable credit fundamentals
Spreads reflect this favourable dynamic in credit fundamentals, and while they aren’t immune to potential volatility leading to episodes of widening – particularly if growth slows materially – we do not think current levels are excessively tight.
Specific to high yield bonds, where spreads are generally tighter than for senior loans, it’s important to consider the changing market structure with today’s higher-quality mix, a higher percentage of secured bonds, and a shorter duration relative to history.
Implications for sophisticated investors
We think credit still represents a great option for income-seeking investors who want shelter from the volatility of equities. However, we are not complacent. The primary way of losing money in credit is picking the wrong credits, that subsequently default and lead to principal losses.
A decline in economic activity resulting from tariffs would likely lead to a higher default rate, and managers would need to display even more prudence and agility to avoid these situations and continue to enjoy the high income currently offered by credit. Furthermore, the “Fed put” may not come as quickly as the market hopes if the central bank is still worried about inflation.
As the economic and geopolitical environment remains uncertain, the contractual nature of credit returns is increasingly compelling. Importantly, this return is predicated only on the issuer remaining creditworthy, compared with the growth that is required to sustain high valuations in equity markets.
There are several factors that make credit more resilient to market volatility, including:
High coupon income: Regular payments act as a buffer to temporary price declines.
Contractual returns: Borrowers only need to survive – not deliver excellent business performance – for lenders to earn their return.
Priority of repayment: Equity holders generally get no meaningful recovery in a bankruptcy, but lenders can achieve strong restructuring outcomes.
David will be presenting at Global Investment Institute’s upcoming Family Office Investment Forum, taking place on Tuesday, 9 September 2025 at the Grand Hyatt Melbourne, Victoria. To register your interest in attending, click here or for more information email zlatan@globalii.com.au.
David Rosenberg, Head of Liquid Performing Credit & Co-Portfolio Manager, Oaktree Capital Management
David is Oaktree’s Head of Liquid Performing Credit and a co-portfolio manager of its US High Yield Bond, Global High Yield Bond, Global Credit Investment Grade and Global Credit strategies. He is also a founding member of the Global Credit Investment Committee.
David joined Oaktree in 2004 following graduation from the University of Southern California with an MBA in business administration. Before attending graduate school, he served as an associate in the Franchise Systems Finance group at J.P. Morgan.
David also holds an MPA in professional accounting with a concentration in finance and a BA in business administration from the University of Texas at Austin.
He is a Certified Public Accountant.
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