(Bloomberg) — Greg Peters, who helps oversee more than $650 billion at PGIM Fixed Income, said it's a mistake to seek yield in the bank loan market because so many borrowers are able to exit the deals and find lower rates.
"There's nothing but downside, there's really no upside," Peters said Friday on Bloomberg Television. "I'm much more skeptical around bank loans, I actually like U.S. high yield better. If you just look at the refinance ability in the bank loan market, it's over 50, 60% that's callable."
(Related: How to Invest in an Uncertain Bond Market)
PGIM is a unit of Prudential Financial.
Fixed-income managers in search of attractive yields are weighing whether it makes sense to plow into below-investment-grade corporate debt after junk bonds returned about 14% in the past 12 months. Peters, who said in March that it was time to reduce credit risk, said that junk still offers a better opportunity than bank loans.
That contrasted with the view of Bonnie Wongtrakool of Western Asset Management, who appeared alongside Peters on "Real Yield," a program about fixed-income markets. She agreed that the callability of the loans could be an issue, but said they provide better relative value. Junk yields have plunged this year to an average of 5.48%, the lowest since 2014, according to Bloomberg Barclays index data.
