Oaktree's Panossian Spots Value in Credit Amid Rate Volatility

Armen Panossian, Co-CEO of Oaktree Capital, has long been a sentinel of the credit markets, navigating cycles with a mix of caution and opportunism. In 2025, as the Federal Reserve’s elevated interest rates linger and trade tensions simmer, Panossian sees a mosaic of challenges and rewards. “The private credit market is still offering value,” he recently stated, “but you have to be selective.” Here’s how Oaktree is parsing the risks and opportunities shaping this critical asset class.

The Interest Rate Quagmire
The Fed’s decision to keep the SOFR above 4% has reshaped private credit dynamics. For buyout firms, borrowing costs have doubled in some cases, squeezing leverage ratios and forcing sponsors to hold companies longer. By 2024, nearly 30% of portfolio companies were held for over seven years—a stark contrast to the typical five-year exit window. Panossian notes this “prolonged holding period” reflects not just rate headwinds but also valuation mismatches. “Sellers are still pricing at 2021 levels,” he says, “while buyers demand discounts.”

Transaction Gridlock
Despite rosy predictions of a 2025 M&A boom, deal activity remains sluggish. Private equity transaction volumes have yet to recover to pre-2022 levels, with refinancings accounting for over 85% of U.S. loan market activity. The result? A credit market starved of new supply. The U.S. loan market grew just 6.1% over three years ending March 2025—a tepid pace that has kept liquidity tight.

Yield Hunger Fuels Demand
Investors, however, are undeterred. High yield bonds and senior loans now yield around 8%, while private credit delivers even higher returns. CLO issuance surged in 2024, with volumes hitting a record $100 billion in the first quarter of 2025, driven by demand for structured credit. Panossian points to this paradox: low supply meets high demand, keeping credit spreads stable but elevated. High yield bond yields, for instance, now sit ~100 basis points above their 2010 average—a gap largely explained by today’s base rates.

Trade Tensions Complicate the Picture
Policy uncertainty, particularly around U.S.-China trade, has introduced new volatility. The April 2025 tariff announcement, for example, halted M&A activity and forced sponsors to audit portfolio companies’ exposure to import/export risks. Panossian warns that such shifts could delay a recovery in deal flow. “Sponsors are now focused on de-risking existing portfolios,” he says, “not chasing new acquisitions.”

Oaktree’s Playbook
With $143.6 billion in credit assets under management, Oaktree is doubling down on structured products—CLOs, CMBS, and senior loans—where yields remain compelling. The firm also emphasizes “specialized strategies” like stressed debt and turnaround financing, which thrive in uneven markets. Yet risks loom: potential redemptions from Business Development Companies (BDCs) could reduce private credit supply, while low default rates (1.2% for U.S. high yield, 1.5% in Europe) may mask underlying vulnerabilities.

The Bottom Line
Panossian’s outlook hinges on two certainties: structural demand for income and disciplined underwriting. While trade policy and rates pose risks, the data is clear. Low default rates, a high-quality debt pool (60% of European high yield is BB-rated), and resilient sectors like investment-grade credits and convertibles create a floor for credit markets. For investors willing to endure volatility, Panossian’s “good value” thesis is backed by math: yields here remain unmatched in a world starved of returns.

In 2025, credit may not be a sprint—it’s a patient, calculated walk through a minefield. Oaktree’s strategy? “Pick your spots, but keep walking.”

Conclusion
The credit market of 2025 is a study in contrasts: yields are high, defaults are low, and opportunities lie in plain sight—provided investors can stomach the uncertainty. With Oaktree’s $143.6 billion credit platform prioritizing structured products and specialized strategies, the firm is positioned to capitalize on this dichotomy. The key takeaway? In a world of 4% SOFR and 8% yields, the calculus tilts toward caution—but also toward conviction. As Panossian’s insights underscore, the credit market isn’t dead; it’s just being pickier about who it rewards.