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InvestorExchange: Credit investing amid today's volatility

Thomas Mucha, Geopolitical Strategist

Amar Reganti, Fixed Income and Global Insurance Strategist

Campe Goodman, CFA, Fixed Income Portfolio Manager

2025-04-17T12:43:17-04:00 | S4:E4 | 20:57

The views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk.

Episode notes

The bond market is critical for moving credit through the global financial system. So how will global bond markets respond amid today's volatility? How have the first 100 days of the Trump administration changed the calculus? In the first episode of Wellington Management's new InvestorExchange podcast, host Amar Reganti, fixed income strategist, talks to Campe Goodman, head of multisector credit investing, about what's next for bond markets and how investors may be able to navigate them.

1:50 How the bond market reflects the current economic environment
4:30 Are we headed for a recession?
7:00 Effect of policy uncertainty on opportunities in credit
10:20 What do credit allocators overlook?
12:10 The rise of private credit
15:50 Tail risks and key lessons learned

Transcript

CAMPE GOODMAN: So we may be in a recession, but like that doesn’t mean that we’re about to have a major default cycle. So I think that spreads are likely to widen, but we’re not likely to get a repeat of the 2008 or the 2000 cycle, or even the early ’90s cycle where we get a huge widening in spreads.

AMAR REGANTI: In December of 2024, The Financial Times reported that the world’s oldest bond, a 400-year-old Dutch perpetual note, has paid interest continuously since 1624. The issuer, a water control board near Utrecht, used the proceeds to finance repairs on a water dike. The current owner, the New York Stock Exchange, celebrated its 13.61-euro annual interest payment. For centuries, bonds have financed infrastructure development, wars, economic projects like the New Deal, and good old-fashioned corporate M&A. The world is built upon the movement of credit through the global financial system. I’m Amar Reganti, fixed income strategist at Wellington Management, and this is the Investor Exchange, a new podcast focused on asset classes and forces that drive them. I’ll be speaking with some of our foremost fixed income experts about their approaches to these important markets. Before we begin, I’d like to thank my colleague Thomas Mucha and his team for letting us use this feed from Wellington’s popular WellSaid podcast. We hope to make him proud, or at the very least, not embarrass him and the WellSaid team. So with that, I’m joined today by my friend and colleague Campe Goodman, head of multi-sector credit investing. Campe, welcome to the Investor Exchange. Thank you for being here.

CAMPE GOODMAN: Thanks, Amar. It’s good to be with you today.

AMAR REGANTI: Ok, so across history, upheavals, turmoil, societal change. The bond market has been through all of it. To me, it’s a living, breathing thing that reflects its contemporaneous environment. You spent your entire career in fixed income markets, well over two decades now. How does that resonate with you?

CAMPE GOODMAN: Well, my first thought when I heard that was, this is why you don’t care about the corpus on hundred-year bonds, because it really doesn’t matter. I mean, we’re getting paid 13 euros a year? Just goes to show that you care a lot about the early payments.

AMAR REGANTI: Yeah, you’re not looking at the 70-year forward payment, right? That’s not what’s really of interest to you.

CAMPE GOODMAN: Doesn’t really matter, yes.

AMAR REGANTI: Yet, I think, not the forward payments, but the current payments and the system bears relevance to what’s happening now within capital markets, right? If you think that the bond market is reflective of conditions, actually, like conditions in the present, and possibly expectations in the future. I’m looking at a market right now, particularly in credit, that has relatively good yields, spreads that were tight, when I first pen to paper on this, but are moving wider on the back of a lot of policy uncertainty -- and we’re recording this on what’s being called Liberation Day – and they’ve moved wider. And we’ve seen a bit more volatility. But yet credit markets feel almost orderly and stable relative to how equity markets feel today. Can you kind of talk me through why and how you see that phenomenon?

CAMPE GOODMAN: I do think it’s pretty interesting to put our current position in context of, you know, what I’ve seen in the markets over the last 25 years. When I started in 2000, it was a time when credit markets subsequently went through three horrible years of performance. 2000 was bad, and then 2001 was worse with the 9/11 catastrophe and recession. And then 2002 was even worse as we had WorldCom and Enron, and some really horrible performance in the fixed income markets. And when I think about what happened there, well, it was a real default cycle. Things blew up and bond spreads widened a lot because there were actual major fears of default in the markets. And then you go forward to 2008, where spreads got significantly wider. And again, it was because there was actual fear that you weren’t gonna get your money back. So, you come forward to today, and you say if we’re potentially headed into a recession, and I think we are headed into a…

AMAR REGANTI: Oh, okay, all right! Well that’s a new statement I’m glad came out on the podcast.

CAMPE GOODMAN: Yeah, haven’t said that before. I actually think we are probably in a recession right now.

AMAR REGANTI: Okay.

AMAR REGANTI: Okay I wanna dig into this recession point and the default cycle. So 2001, there had been a set of assumptions, not just about the dotcom market, but the overall strength of the economy, as well as corporate reporting when it came to WorldCom and Enron. All of those assumptions had to be changed and recalibrated, and a default cycle was in full swing, for several years I think, it was at least two years, right, where things were ticking up. And in ’08, it was what Richard Koo would call a balance-sheet recession, the credit impulse within an economy. So refinancings, collateral evaluations all were sort of jeopardized. Can you have a recession in a weaker economy, and no default cycle in the sense of the ones that most credit market practitioners understand?

CAMPE GOODMAN: Well, that’s a tough one. But I’d say, you’ll get a higher default environment, but I don’t think you’re going to get the type of major default cycle that we saw during those previous periods. There are two major differences I’d point to. One is that corporate balance sheets are just so much better than they were in those previous periods. As you look at just statistics like debt-to-cash-flow, or interest coverage. And the other reason is that in those past cycles, a lot of the brokerage firms were highly levered in a way that they’re not today. So, we always used to talk about how the banks and brokers were supposed to be providing liquidity to the markets, but every time we got into one of those situations, it was more like they were the big guys in a crowded theater when somebody yelled fire, and they were shoving you out of the way to get out the door before you could. So, I think it’s very different today.

AMAR REGANTI: Yeah, actually that’s funny. Following the GFC, one of the critiques of a lot of the reform in Dodd-Frank and Volcker rules was, this would inhibit liquidity. And the pushback was, these weren’t institutions that were stepping in the way to mop up liquidity when there was correlated selling across markets.

CAMPE GOODMAN: Yeah, it inhibited day-to-day liquidity in normal markets, but it made the probability of a major crisis, I think, lower. So, I thought it a good move for them to essentially be forced through regulation into reducing the size of the balance sheets.

AMAR REGANTI: So from a recession perspective, I assume then that you’re viewing the hard data catching up with the weakness of the soft data in a relatively near- and intermediate-term period?

CAMPE GOODMAN: What I think is going on right now is that we’ve introduced a significant amount of policy uncertainty into the economy. And I should say just, my disclaimer here is, this is not a political view. You know, this has nothing to do with what I think politically.

AMAR REGANTI: Disclaimer noted.

CAMPE GOODMAN: But the facts are that we’ve created significant uncertainty. Whether or not we go ahead with massive tariffs, whether or not we actually fire a bunch of people out of the federal government, or whether they get reinstated by judges, whether or not we continue to make large disbursements to all of the universities and hospitals that are expecting to get federal payments over the coming year, it’s really hard to say whether those things are going to happen or not. But what we can say is that it’s created an environment where it’s much harder to plan. Businesses are more reluctant to hire. Consumers are nervous about spending. And so all of that is causing just a shift in the environment. So far, we’ve really only seen it in confidence, we’ve seen it in a decline in hiring, but we haven’t seen a pickup in firing. But I think as we move forward here that policy uncertainty is going to translate into economic uncertainty. That’s going to translate into a lower level of activity, and I think we are just starting to see that now. You’re seeing it in some of the advanced, GDP Now numbers, and things like that. But I think we have farther to go. Now, the big question then is does that translate then into a large enough decline in profits and we see corporate defaults pick up? And I think the answer to that is going to be somewhat but not to the degree that we’ve seen in past recessions. So I think we’re in a mild recession, but it is a mild recession.

AMAR REGANTI: Okay, so if we’re threading that needle, how do you kind of think about navigating this in your day-to-day?

CAMPE GOODMAN: I think that we are shifting from an environment where the Fed was likely to keep rates stable, on hold because growth was steady and the risks were tilted towards higher inflation, towards an environment where the Fed is going to be more willing to cut. I believe that we’re entering an environment where the Fed probably will start talking about lower rates. They’ve been reluctant to do that because they’ve been concerned about inflation. But they believe, and I agree, that if demand comes down then inflation will fall as well.

AMAR REGANTI: So overall, lower rates is how you’re viewing?
CAMPE GOODMAN: Lower rates. Yes, and yes, somewhat wider credit spreads. Again, I don’t think we’re going nuclear on credit spreads here. But they ought to be wider and incorporating more of a risk premium.

AMAR REGANTI: And you think the opportunity set is a bit more leading toward domestic, or are you looking a bit more abroad?

CAMPE GOODMAN: I think that some of the best opportunities are likely to be outside the US, in Europe, in emerging markets, especially, emerging market corporates. And within the US, I think the opportunities are better in structured product than in the corporate sector.

AMAR REGANTI: I keep saying this, but it’s true, because you’ve been doing this a long time. What do you think a lot of credit allocators often overlook?

CAMPE GOODMAN: Yeah, thanks for the reminder that I’ve been doing this a long time.

AMAR REGANTI: No, it’s okay, you don’t look like you’ve been doing it that long, so.

CAMPE GOODMAN: I think the first thing that I’d say a lot of allocators overlook is that they don’t consider a broad enough opportunity set. Many of them are restricted to just looking at the US or just looking at corporates. I do think that one of the things that I’ve really been able to do over time is take advantage of Wellington, where we have so many different opportunities that we can look at. Some of the things where we think there’s value are things like emerging market corporates or convertible bonds. Those can be tough opportunities for a lot of allocators to take advantage of.

AMAR REGANTI: I mean, that’s human in a way, right? You come up as the high yield guy, let’s say hypothetically. You look at the world almost inevitably through like a high-yield lens, and it’s hard to kind of break away and look more broadly. I mean, is that right? Is that a thing that can happen to risk takers?

CAMPE GOODMAN: Yeah, you never forget your first love. And so, it’s hard to fully move away from that. So I think that can be a real challenge. I also think that, it’s often the case that investors get a little too focused on strong fundamentals. I tend to place a pretty heavy emphasis on valuation. So, a good example of this is over the past couple of years, US high yield has had such a low default rate, Europe has looked less attractive. But European spreads were wider, and I think incorporated that difference in fundamentals. Now as things are changing, in Europe you’ve got wider spreads and improving fundamentals, whereas in the US you’ve got tight spreads and deteriorating fundamentals. We’re starting to see that gap narrow.

AMAR REGANTI: A thing I want to bring up is one that we could probably devote a whole podcast to is thinking about your world has been impacted by the rise of private credit. And it wasn’t a big feature two decades ago. And now it seems like it’s grown into its own short of channel of the global credit impulse. How do you think that impacts public markets? And do you think it’s helpful to you? Or has it been a hindrance to achieving what you want to get done?

CAMPE GOODMAN: Okay, I’m gonna give my answer and then I wanna hear your answer.

AMAR REGANTI: Okay, fine, yeah.

CAMPE GOODMAN: I think private credit has been largely a replacement for what the banks used to do. I think it has picked up a lot of the slack in terms of the banks are doing less of that lending and so, private credit has found it very profitable to get into that space. Insofar as that’s what’s going on, it’s generally good. It’s providing capital that used to be provided by banks. That said, it’s less transparent than banks ever were. It’s less regulated. It is untested through a real default cycle. And I think there has been this assumption that private credit doesn’t need to be backstopped in the same way that banks did and therefore it’s a good thing. But we have no idea whether that’s true.

AMAR REGANTI: So I agree with you. I mean, there’s some good things that I’ve seen arise from it for the system overall, which is, in 2023, I think we would’ve had a lot worse sort of tightening of financial conditions if the private credit channel hadn’t been there. We had a bank run, which sounds crazy to say, in 2023. Corporate credit officers at banks started tightening conditions, spreads moved wider. We should’ve seen a slower kind of economy. But the private credit funds just kept raising capital and deploying it. So you had this, I don’t want to call it a shadow bank but it felt like a shadow bank, injecting credit into the economy. And that was, I think, a good thing. It stabilized, the US economy and worked in a counter-cyclical fashion. And now there’s a growing connectivity back into the regulated market of banks and insurers, who had initially kind of -- at least the banks shed that side of the business, but now are coming back in in different ways, whether it’s providing leverage or taking stakes in LPs. And to me then, what you’re doing is connecting something that has less transparency back into the regulated credit creation channel. And I don’t know what that looks like if we do have a worse slowdown.

CAMPE GOODMAN: Yeah.

AMAR REGANTI: That’s my thought on it.

CAMPE GOODMAN: It’s so opaque, Amar.

AMAR REGANTI: Yeah, I don’t know if there needed to be some type of emergency intervention in markets for financial stability purposes. I don’t know where that intervention could actually take place, right?

CAMPE GOODMAN: That’s a big question.

AMAR REGANTI: That’s a very big question.

CAMPE GOODMAN: Okay, this is sort of your area. What’s your guess on how we would actually do that? Would they bail out one of these big private credit funds? Or are they going to provide some kind of stability fund? Can even do that legally?

AMAR REGANTI: I don’t know. I mean, it’s a great question. I mean I was around the folks who worked on Dodd-Frank Title II, which was the unwinding, orderly liquidation of a large financial institution. It’s unclear how that would be applicable to something like a private credit fund. I assume there would probably have to be some type of sector-Y type of facility, because they can’t pick and choose individual funds. The very thing you and I talked about, the lack of transparency, how do you even value the collateral? Like, you’re back to that ’08-ish problem, I’m not saying it’s like ’08, but one of the big issues was, no one knew how much something was worth. And that was a huge issue. So like, getting back to that I think is very hard. Maybe we look back to the early ’90s, like resolution trust, the post-S&L-like intervention.

CAMPE GOODMAN: Yeah, that’s a good example.

AMAR REGANTI: What tail risk is then keeping you up at night if we take the private credit discussion out of the picture?

CAMPE GOODMAN: I do think that the real tail risk here, is that, due to this uncertainty, or some kind of policy mistake, the economy slows much more than what we’re expecting here, the US economy in particular. And part of what has helped the economy over the last few years has just been very strong confidence from businesses and consumers and also, there’s been a lot of policy support. And we’re literally cutting confidence here. We’re cutting spending. And we have no idea how much that has underpinned the economy. And this is a tail risk; is that we have like a Wile E. Coyote moment here, where all of a sudden we look down and there’s absolutely nothing supporting us and we have a much more substantial recession.

AMAR REGANTI: That’s something one could lose sleep over really easily. I also wonder if we’re now tariffs on goods, what are the concept of tariffs on capital controls or frictional costs.

CAMPE GOODMAN: The other thing that scares me is that I say “Wile E. Coyote,” and half of our audience has no idea what I mean by Wile E. Coyote.

AMAR REGANTI: Yeah, well you can’t be experienced in this market and still hip to the best way to speak to pop culture. I don’t think those things intersect.
CAMPE GOODMAN: Yeah.

AMAR REGANTI: Okay, I’m gonna end on one last question, because we started with history, and we can look to the future. But, thinking back over the last 20-plus years, is there a day or market event that you remember vividly? And what are the lessons from that moment that you think you’ll utilize ahead?

CAMPE GOODMAN: I think I do want to go back to that early 2000s period. I remember there was one particular day in 2002 when the high yield markets were just getting absolutely bludgeoned, and it was the worst day, month, year than I think anybody had experienced. And late in the day the sun began to set. And down in the high yield side of the room, where all our high yield investors were, there was just this beautiful blood-red sunset that was shining brightly through the windows. And one of our smart-aleck mortgage portfolio managers who was feeling much better about the world at that time, looked down and said, hey look, I think the whole high yield position just went supernova! And it just felt like everything was melting down, and it was terrifying. But at the same time, I saw the best investors that I knew stay steady, hold their positions, buy more. And it was a great lesson that we get through some of these things. They do bounce back, markets correct over time, and you’ve got to be willing to stay calm and confident during some really terrifying times.

AMAR REGANTI: Great lesson about staying calm. And ironic that it was the mortgage guy who said that, because his time would come in a few years.

CAMPE GOODMAN: Yeah, great point. It sure did.

AMAR REGANTI: Campe, you’ve given us a lot to think about. Thanks for joining us today. Once again, Campe Goodman, head of multisector credit investing here at Wellington Management.

CAMPE GOODMAN: Thanks Amar, it’s always fun to talk to you.

Views expressed are those of the speaker(s) and are subject to change. Other teams may hold different views and make different investment decisions. For professional/institutional investors only. Your capital may be at risk. Podcast produced April 2025.

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