Credit has been an excellent source of returns over the last decade, particularly Yigh Yield. When oficial rates were at zero, credit was one of the few spaces where you could get positive nominal returns, and when rates were hiked between 2022-2024, spreads tightened, counterintuitively, which has provided an expended period of great returns. Credit is very sensible to economic conditions, and as you can see below, it has been highly correlated to Bankruptcies in the past. You can argue that small caps are going bankrupt and most pf those companies do not participate in the High Yield market, but if the economic environment deteriorates, spreads will widen, which is what the chart below points out. How long can spreads be detached from bankruptcies?
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