Post-crisis stigma has faded, making Collateralized Loan Obligation (CLO) tranches a top relative value pick in credit markets. The structure allows investors to precisely select risk exposure, from safe AAA tranches with attractive spreads to high-return equity positions, outperforming other credit assets.

After a decade of negative real returns, bonds are now attractive on a pure valuation basis relative to equities. PIMCO's CIO suggests bonds may outperform stocks over the next 5-10 years, making a compelling case for allocation regardless of their traditional role as a correlation hedge.

The 0-12 month market is hyper-competitive, while quantitative models lose predictive power beyond five years. The 2-5 year timeframe is ideal for value strategies like special situations and mean reversion, offering a balance of predictability and reduced competition.

Goodwin argues against the passive "index-hugging" approach to credit focused on coupon payments and agency ratings. Diameter's edge comes from approaching credit like an equity long-short fund, constantly analyzing what macro and sector trends will change security prices over the next 3 to 24 months to generate total return.

With credit curves already steep and the U.S. Treasury curve expected to steepen further, the optimal risk-reward in corporate bonds lies in the 5 to 10-year maturity range. This specific positioning in both U.S. and European markets is key to capturing value from 'carry and roll down' dynamics.

Judging the credit market by its overall index spread is misleading. The significant gap between the tightest and widest spreads (high dispersion) reveals that the market is rewarding quality and punishing uncertainty. This makes individual credit selection far more important than a top-down market view.

While currently unattractive, a future, inevitable credit spread widening event (e.g., IG to 165-185 bps, HY to 600-800 bps) will kick off a five-to-ten-year 'golden age' for credit, where corporate bond returns could rival or even outperform equity markets.

With credit spreads already tight, their potential upside is limited while their downside is significant in a recession scare, offering poor convexity. Goldman Sachs advises that a better late-cycle strategy is to move up the risk curve via equities, which offer more upside potential, rather than through credit investments.

A steep yield curve makes fixed annuities more attractive for consumers. Life insurers sell more of these products and invest the proceeds into spread assets like corporate bonds, creating a powerful, non-obvious demand driver for the credit markets.