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Credit market dynamics are shifting as rating agencies take a more favorable view of private credit collateralized loan obligations.
On social media, Jeffrey Gundlach drew attention to the contrasting moves in the U.S. leveraged finance market. While spreads on CCC-rated bank loans have been widening—a sign of mounting risk—both Moody's and Fitch have recently upgraded ratings on hundreds of outstanding private credit CLOs. This divergence raises questions about the risk assessments underpinning recent upgrades. Moody's and Fitch have not issued public statements explaining the justification for these rating actions. Market participants will be watching closely to assess the sustainability of this positive momentum in CLO credit ratings against a backdrop of rising loan risk.
Gundlach has previously cautioned that government scrutiny could lead to downward revisions in U.S. private credit fund valuations. He also tracked the U.S. 30-year Treasury yield as it approached a two-decade high, warning of resistance levels unlikely to hold. These observations come as market participants try to interpret rating upgrades across private credit CLOs.