In a strategic move, global investment firm KKR is shifting its focus from floating-rate debt to high-yield bonds, particularly in response to the Federal Reserve's halt in its monetary tightening cycle. The decision comes as the firm anticipates fixed income to outperform with the tightening cycle nearing its end.
Jeremiah Lane, KKR's head of US leveraged credit, has suggested an equal allocation between floating and fixed-rate debt, considering the unlikely scenario of significant Fed rate hikes in the near future. He identifies potential in BB and BBB rated collateralized loan obligations within the floating-rate debt category. These offer higher spreads but bear lower default risks.
The firm's new strategy also stems from its observation that bond markets comprise higher quality companies compared to leveraged loan markets. A substantial part of speculative-grade debt markets, over half of the US high-yield bond market and 60% of European junk issuers, are BB rated.
This move by KKR reflects a broader trend among investment firms to adapt their strategies in light of evolving market conditions and monetary policies.
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