“As a professional investor, what we look at are actually the Treasury markets. They’re sending this signal that there’s this risk inherent,” says Alan Schrager, senior partner at Oak Hill Advisors, in the latest episode of Credit Exchange with Lisa Lee, speaking to the recent rise in long-term sovereign yields of developed countries. “You always think of the risk premium of the US Treasury to be zero. And now that’s really what’s changed is that there is a risk premium in there.”

As for investing, Schrager says playing quality still makes more sense. “[Look] at a spread chart for almost any asset class and it’s tightened significantly,” he notes. And what happens in those kinds of markets is that it’s very hard to get paid for the risk you’re taking. The bottom part of the corporate debt market is starting to see some stress, including in private credit.

That means there are now “little nuggets of opportunities” in decent companies that have now run their course. Oak Hill Advisors, which has nearly $100 billion in AUM focused on sub-investment grade corporate debt, is now focusing on trying to provide capital, in either restructuring or refinancing transactions that take decent companies with bad balance sheets and redo them.