KKR's Chris Sheldon on Market Volatility, Credit Resilience, and Policy Uncertainty

Credit Market Resilience

• 💡 The credit markets have shown significant resilience over the last five to seven years, evolving beyond traditional high-yield and investment-grade corporate bonds.
• 🚀 The market is now more diversified, encompassing public and private debt, corporate finance, and asset-based finance on a global scale.

US Treasury Market Stability

• ⚠️ A recent surge in the 10-year US Treasury yield and a sharp selloff in the 30-year yield highlighted thinning liquidity and flashing warning lights.
• 🎯 This volatility served as a crucial reminder to policymakers in Washington D.C. about the significant role of a stable US Treasury market as the nation's ballast.
• ⚡ The speaker suggests this volatility occurred without major foreign holders like China, the UK, or Japan actively flexing their positions.

Policy and Economic Outlook

• 💬 Unlike previous periods of volatility (GFC, COVID), current volatility might be addressed through policy actions or trade deals, rather than solely Treasury or Fed interventions.
• 📈 Across KKR's 2,000 portfolio companies, there is still observed growth, though dispersion has increased, and some slowing is evident.
• 🌍 The speaker notes a trend of capital flowing to Europe and positive implications for pan-Asian trade.

Market Sentiment and Capital Deployment

• 🧐 While some attendees at the Milken Conference expressed optimism about the economy, the speaker found a lack of broad optimism regarding the next 6-12 months.
• 💰 However, there is significant dry powder and liquidity in credit markets, with investors waiting for a sell-off to deploy capital.
• 💡 There is a strong demand for financing, particularly for capital-intensive companies, leading to an increase in bespoke capital solutions and off-balance-sheet financing models.