BDCs as another weak link in private credit + Sonia vs Euribor - VP Portfolio Watch

  • Business Development Companies (BDCs) are levered listed vehicles holding illiquid loans to highly-levered companies.  
  • Our active US recession signal suggests the US recession has already started and shorting leveraged loans or BDCs can provide an asymmetric payoff in 2H23 despite the negative carry.
  • The June 2024 Sonia vs Euribor futures spread is back to levels last seen in the Liz Truss mini-budget debacle from 2022.  Inflation LEIs point to a contradiction between the relative policy mix and market pricing. 
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