The Most Important Thing About This Debt Crisis with Matt Dines

Nik Bhatia (0:07)

A potential crisis in French government bonds, a potential crisis in high-yield bonds. We have a bond guy here to talk us through it. Matt Dines, welcome back.

Matt Dines (0:18)

Great to be here, Nik.

Nik Bhatia (0:20)

All right, let's get right into the prices that you are watching most closely. What's gapping down? What's gapping wider on credit spread?

We're going to get into where we are in this credit cycle. I know you believe we're near the end, meaning approaching some key defaults. So give us your vantage. What are you watching?

Matt Dines (0:43)

So obviously, hands on the keyboard every day in secondary markets. I focus on corporate issuers just because I like the liquidity there, for investment grade, which is where I focus. But just going through TradeWeb, the daily trace market recap of issuers, who's widening, who's tightening on spreads.

You see kind of the same who's who show up. Not the same day every day, but in the last couple of weeks, it's really accelerated, I think, in my framework. So remember the beginning of the year, we started to see these massive deals coming out. It was the hyperscalers like Google, Amazon, Meta, etc. Then Abbott Labs for Biotech or Pharma was in there as well. But these were these just massive deals in investment grade in the dollar denominated credit markets coming in.

This was even pre-Hormuz. So the start of this year, it was front-loaded with a lot of your A's, double A's issuers pulling dollars out from the public bond markets. As we went in the year progressed, Epic Fury happens, Economic Outcast happens. You get the SpaceX IPO in June, pulling more capital out, raise the money while it's there. And then also the follow on was the SpaceX investment grade debt offering, which was 144A, Reg S, all of that. That was a massive deal. And then I think Q3 was where we've started to see the turn. And in the last couple of weeks, when I bring it back to the trade web, we've seen a lot of investment grade or even high yield widening and tightening every day where you track issuers.

We've all seen this, right? Where you start to see oracle spreads widening out. They're one of the highest yield investment grade issuers as a BBB in the Bloomberg US aggregate index. They're right up there with your private credit issuer or your private equity issuers, like let's say a Blackstone Secure Lending Fund or Morgan Stanley Direct Lending Bond or Oak Tree Specialty Finance 1 or whatever. You see those spreads widening out, especially in the Q3 and that continues. Then in the last week or so, this was really last week in high yield, you started to see names like the CoreWeave Unsecured Debt. That's just one little sliver of the credit financing that CoreWeave is using to fund its build out of a compute capacity.

But those started to show up, and then I like this other one. This one doesn't get a lot of attention, but JetBlue, right? They've been at the top of your leaderboard for high yield bond price decliners, I don't know, probably like three out of the last six sessions, not counting today, which is Tuesday, October 20th. So JetBlue, as kind of a canary in the coal mine, I went through this on my episode, I recorded it over the weekend for Mind Print Hash, but I think JetBlue represents, it's a good, what we just call it, like a micro-narrative of what's going on more broadly in the bond markets, right? Where money, like money creation actually takes place, right? We talk about, in Bitcoin, right? The money printer. Well, when you issue a public bond, what you're doing is you're putting some script out, some IOU, and you're tapping the public pool of capital for money creation. So what's happening is you're sucking money out of that public bond market capacity. And I think what you're seeing, like everything I talked about, there was a massive, let me just call it, push from the issuers to suck that or to pull the money, to create money out of the public bond market capital pool of savings, right? And that's starting to show signs where it's like, all right, if right now as that amount of capital is getting pulled out, is coming at higher and higher rates, which is the trend on the chart for 2026 year to date. It's very clear at this point that sucking of capital or that draw on capital, you're starting to run out of balance sheet capacity. Yields want to go up, so money becomes more expensive, more dear. And the issuers, and this is where JetBlue comes in, if you're riding a secular trend where basically ever since the shale bust of 2016 where that high yield event took place and snapped, where collectively all of that capital, that credit capital that flowed into, you know, drilling every hole in the ground in Texas, Pennsylvania, North Dakota, in the first half of the 2010s, they realized those were uneconomic.