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Marc Lasry: Investment-Grade Corporate Bonds To Plunge 40%

U.S. investment-grade corporate bonds are likely to plunge as economic growth slows, with some dropping as much as 40 percent, distressed-debt investor Marc Lasry said Wednesday.

investment-grade corporate bonds

The Federal Reserve is likely to lift short-term rates about another percentage point, slowing economic growth in the process. Eventually, a massive sell-off will follow in the $5 trillion market for U.S. investment-grade corporate bonds, said Lasry, chief executive officer of Avenue Capital Group, in an interview on Bloomberg TV.

“In any slowdown, you’re going to have bonds drop pretty quickly,” Lasry said. “We’ll be able to buy those bonds somewhere around 60 to 70 cents on the dollar,” which are currently trading around 100 cents, he said.

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Lasry: U.S. Investment-Grade Corporate Bonds To Plunge As Mush As 40%

Transcript

There's only one place to begin and that's with this. What do you make of all this market volatility is at the beginning of the bear market. Some people have been waiting for is this just another pause on the way to higher highs like we've seen so many times in the past five years.

I think it's going and it's going to be kind of difficult. The simple reason is everybody's waiting for the midterms. I think what you're going to find at least sort of our belief is. If Democrats get control. I think you're just going to have a lot more volatility. And the reason you have more volatility is you're going to have more headlines you're going to have. You're going to see more of all these problems that you're having in D.C. with the president and Congress. So we're. Between. The House and the administration is that what you're talking about how is that what you need Democrats need to get control of the house if they don't then I think you will find the markets going up. I think what's happening is the markets are sort of focus on the fact that if Democrats get control you're going to have a lot of issues and those issues are not good for the economy. So you believe that what we've seen over the past five days more than five days say past couple of weeks is a reflection of. Political risk being priced into the market.

I think political risk is getting priced in. I think you've got a lot of economic issues and what you're finding the other economic issues is how much is the economy going to grow. So equities need an economy to grow around sort of 2 to 3 percent. Right or 3 to 4 percent. Bonds need sort of flat to up 1. For what we do. All we need is an economy doing what it's doing. So whether the economy's up or the economy is up two and a half. That's great for us. But for equity markets you need to still have this steady growth. And I think people are again nervous about whether that growth is there and then you're getting nervous about what's happening on the political side. Let's talk a little bit more about that political side. When you say we're going to have if in fact Democrats take control of the house. When you say there's going to be more volatility than what we've seen. What does that look like. What does it look like from November. 6th through a year. Well take a look if you take a look what's happened the last two years.

Whenever there's been issues within the administration. A Republican controlled. Congress. Has made those issues go away. So the biggest one would just be investigations of the president. So if you have a Democratic controlled. Congress so a house you now start having those situations and I just think the market doesn't want to deal with. That. And if you're white because it's bad for business. Well just because what the market wants it you want to know what's happening. Certainty. Certainty. That's exactly it. The more uncertainty there is the. Headline risk there is the more issues you will end up having. So to what degree mark do you care about this as a credit investor or are you looking at the market today and what you're. Predicting if you will.

Between now and the end of the year.

And that's a sell signal or is that a bicycle. Well for us it's a bicycle. But the reason for us we like uncertainty. Is. The more people are nervous the better it is for me. But if it's going to get worse between now and year end why not wait. Why not. Back and wait till after the midterms and it's. OK. And it's been you know that would be great. So you could tell be great. Tell me where the bottom is. I would love that right. I'd. Love to know. Always the bottom. Well we we're very good at. Is understanding value. So buying some. Thing at 60 cents or buying something at 50. I don't know if we're ever going to tie. Bottom but we'll be very good at buying a pretty low price. Let me ask you about spreads. We can look at the equity market. Try to decide whether we have seen or will see a bottom for risk asset. Basis of what's going on in the Russell 2000 or the S&P 500. We were in the.