Credit Roundtable: Bond market and AI debt (with Scarlett Fu)

The bond market offers attractive all-in yields, but the setup is treacherous. The long end is vulnerable to a deficit-driven steepening. AI-related credit is a clear avoid; bondholders are exposed to a data center overbuild with no equity upside. The trade is to harvest income, stay short duration, and be highly selective as tight spreads offer no margin for error.

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Asset Manager
Warren Pearson 8.0

Credit Roundtable: Bond market and AI debt (with Scarlett Fu)

Scarlett Fu

Asks whether to hold Treasuries or investment-grade debt as a defensive anchor.
Warren Pearson

People are owning bonds for the income they generate. We see strong flows into the market. The long end of the curve is more susceptible to increases, so we could see some curve steepening. But we see good value.
Scarlett Fu

Asks which part of AI-related credit to buy to avoid getting burned.
Warren Pearson

Better opportunities are on the equity side. We've been very cautious on AI credit. There's a good chance of an overbuild on data centers. As a bondholder, there's no five or ten bagger in returns. We get our money back if everything works. On the equity side, winners can make up for losers. We've been cautious up to date.
Scarlett Fu

Asks how to protect yourself in this environment.
Warren Pearson

Diversification is a good front line defense. Don't be over your skis in risk posture. Spreads are tight, but be selective and measured. Don't be too far out the curve. If the deficit issue puts upward pressure on longer rates, don't go too far on duration. The overall level of interest rates is attractive.

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