Oaktree Capital chairman worries corporate credit markets is vulnerable

19 May, 2020 03:44

Howard Marks, the billionaire investor and co-chairman of Oaktree Capital Management, expressed his concerns on Monday that, the corporate credit markets will come under pressure once again if the Federal Reserve eventually rolls back its support to Wall Street.

The central bank has not bought corporate bonds directly from issuers yet. The Fed’s announcement that it would set up emergency facilities to buy IOUs from U.S. businesses was enough to arrest the tumult in corporate credit markets.

“We haven’t actually had to lend anyone any money because now the markets are working because the markets know that we’re there,” said Fed Chairman Jerome Powell, in an interview with CBS on Sunday.

“Those of us in markets believe that stocks and bonds are selling at prices they wouldn’t sell at if the Fed were not the dominant force. So if the Fed were to recede, we would all take over as buyers, but I don’t think at these levels,” said Marks, in an interview with Bloomberg TV.

Marks added plenty of companies were outside of the scope of the Fed’s aid. “There are large, highly levered companies and investment vehicles that the government and Fed rescue program is not likely to reach and take care of,” he said.

Marks also worried the Fed’s support was encouraging market participants to take more risk than they could bear by themselves as investors count on the Fed to provide a backstop to corporate credit.