In short: Splitting: higher-rated loans "still doing fine… up about 4%," but CCC loans are down 5–6% total return and AI-linked loans are 130bp off their tights. Not in his model portfolio; a Fed hike "just puts more pressure on these bank loan floating rate borrowers." (Downgraded from Positive on SEP-10.)
Loans to below-investment-grade companies whose interest floats with short-term rates. A week ago he praised their ~7% yield; now he splits the market: better-rated loans are still up about 4%, but the weakest (CCC) loans have lost 5–6% and AI-linked loans have cheapened sharply. A Fed hike raises these borrowers' payments further. They are not in his model portfolio.
4:56Also what I'm focusing on more recently is looking at the various tiers of credit ratings. So a few months ago everything was tight, even the lowest rated triple C's, and now you're starting to see erosion in triple C's. For example, the weakest bond market sector, and we're slicing them very thin, is triple C bank loans, which are down several percent in price and down about five or 6% in total return, while higher rated bank loans are still doing fine. They're up about 4%.
In short: High-risk fixed income — the bank loan index and EM local currency — yields "about 7%, which seems like pretty good competition" for stocks at the highest Shiller CAPE ever. Leveraged loans were also the best-performing bond sector since the war began (+3.1%) while Treasuries, MBS and IG corporates went negative.
Bank (or "leveraged") loans are loans to below-investment-grade companies whose interest rate floats with short-term rates, so they don't lose value the way fixed-rate bonds do when rates rise. They yield about 7% now. Gundlach's point is comparative: with stocks at one of their most expensive valuations ever, a ~7% income stream is serious competition — and these loans were the best-performing bond category since the war began.
1:34if you take high-risk fixed income like local currency emerging market or the bank loan index you have yields of about 7% which seems like pretty good competition I would say for a stock market that has, as we'll see, a Shiller CAPE ratio that's basically at the highest level of all time. This is a rising long-term interest rate environment and it has been now for six years going on seven years and we see that all of them except Switzerland have been moving up in sync.
In short: "Look at the BKLN / bank-loan index" — leveraged loans (many tied to software) are where the credit crisis is showing first.
BKLN is a fund that holds "leveraged loans" — loans made to companies that already carry a lot of debt. Many of these loans were made to software companies. The fund's price is an easy way to watch how that loan market is doing.
He says this is where the credit crisis is showing up first. With AI gutting software firms, the loans tied to those firms are weakening — so watching BKLN gives an early read on the damage before it spreads to riskier corners of the bond market.
11:23So our 21 lead in systemic risk indicators are not at 2008 levels but they've gone from very low level to to a very um like intermediate high level in a very short period of time. I guess the biggest point is to look at the BKLN or the bank loan index or any kind of portfolio of leverage loans um which are a lot of them are tied to software and what's happened at the end of the day David is that we've had trillions of dollars from from Silicon Valley come into capital expenditures on artificial intelligence, right? And what that's
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