Golden Tree's Tannenbaum Says Credit Is Stuck in a Midcycle Trap but Pockets of Real Value Are Emerging

What's New

Steven Tannenbaum, CIO and founder of Golden Tree Asset Management, argued that credit is in a historically difficult part of the cycle where total returns will trail coupons while equities outperform, but that asset-backed securities, out-of-favor sectors, and private credit are offering better value than they have in two to three years in an interview at the Bloomberg Global Credit Forum. Tannenbaum, who started his career running a mutual fund at MacKay Shields before building Golden Tree into one of the largest credit-focused hedge funds, brought that mutual fund lens to a market where 73% of a Bloomberg audience described themselves as neutral or defensive.

Why It Matters

Tannenbaum's framework challenges investors who are waiting for a macro event to create opportunity. His argument is that stretched midcycle valuations with 2%-plus GDP growth historically compress credit returns below the coupon while equities capture the upside, and that pattern is playing out now. The opportunity is not in the index but in the dislocations within it: cable equities hitting 52-week lows while debt has not adjusted, healthcare equities funding technology rotations at unreasonable discounts, and private credit improving as the open-ended funds exit the market and more deliberate buyers remain.

Big Picture Drivers

• Midcycle positioning penalizes credit structurally: Tannenbaum noted that when valuations are stretched and the economy grows at 2% or better, credit historically returns less than its coupon. The asymmetry is unfavorable: no upside for earnings surprises and heavy penalty for disappointments. Equities, including the equal-weighted S&P, have been capturing the broader rally.

• Cable as a debt-equity arbitrage: Comcast is at or near a 52-week low. Charter and Cable One are in similar territory. Yet portions of the debt have not repriced to reflect the equity signal. Tannenbaum frames this gap as an investable relationship, particularly as cable's business model faces structural pressure from fiber to the home and fixed wireless.

• AI infrastructure offers overcompensation on a two-to-three-year horizon but carries historical precedent risk: Tannenbaum acknowledged that AI-linked credits backed by strong hyperscalers look well-compensated for near-term risk, but noted that history has a bad record with overinvestment cycles, from riverboat gambling to undersea cable. He advocates for deliberation and additional assurances from end users rather than broad deployment.

• Private credit improving as anxious capital exits: Open-ended private credit funds are pulling back from the market, leaving more deliberate, closed-end buyers as the primary source of demand. This dynamic is producing better pricing and terms than the past 24 to 36 months, though Tannenbaum rates the opportunity as roughly a six or six-and-a-half out of ten.

• Oil pricing in the equity and M&A markets signals a duration discount the market may be wrong about: Midcap oil equities are pricing in $70 to $75 oil despite spot prices in the mid-$90s. M&A multiples in oil services have not adjusted. Tannenbaum reads this as excess cynicism about duration that creates an opportunity if oil stays higher for longer.

By The Numbers

• Mid-$90s — Current oil price, versus market expectations that had priced past Memorial Day at $125 to $135

• $70 to $75 — Implied oil price in midcap oil equities and oil services M&A multiples, suggesting the market doubts the sustainability of current levels

• 6 to 6.5 out of 10 — Tannenbaum's rating of current private credit value on an absolute basis, above average but not by much

• 73% — Share of the Bloomberg Global Credit Forum audience positioning neutral or defensive for the remainder of 2026

Key Trends to Watch

• Opportunistic credit as the fastest-growing strategy by inflows: Tannenbaum identified long-playbook opportunistic credit as the strategy gaining the most traction, positioned between pure distressed and traditional private credit. Investors want managers who can move across the quality spectrum as pockets of dislocation emerge.

• AI infrastructure eventually pricing at high yield spreads in the investment grade market: Tannenbaum expects that at some point in the financing cycle, every overfunded infrastructure buildout produces credit instruments with below-investment-grade risk at below-investment-grade pricing, regardless of the initial rating. The timing is uncertain but the pattern is consistent.

• Healthcare equity dislocation as a credit market signal: Tannenbaum flagged healthcare as a sector that appears to be serving as a source of funds for technology rotations, with companies like Tenet trading at valuations where the credit markets would finance the entire market cap. This gap creates both equity and structured credit opportunity.

Memorable Quotes

• "Historically, when you've had stretch valuations in a midcycle where the economy is expected to grow at 2% or better, your returns in credit are less than the coupon, and that's exactly what's happened so far." Tannenbaum on why the current credit environment is structurally unrewarding.

• "History would have a bad record in terms of overinvestment for industries that have very high payouts, whether it's riverboat gambling to something like undersea cable." Tannenbaum placing AI infrastructure capex within a longer historical pattern.

• "I'm incredibly fickle on these topics. In a month or two I could just have a different perspective with more evidence." A rare admission of epistemological humility from a CIO managing billions in credit.

The Wrap

Tannenbaum is telling a story about patience and pattern recognition. The midcycle trap he describes is not a crisis but a grind, a market where index-level returns disappoint, equities capture the marginal dollar of optimism, and the real opportunities are in sectors the crowd has abandoned. His mutual fund training surfaces in the question he keeps asking: who is going to buy this from me, and why? That buyer-seller framework makes him early in cable, where equity signals have not yet fully transmitted to credit, and cautious on AI infrastructure, where the current supply of willing buyers may eventually exhaust itself as it has in every prior overinvestment cycle. The question is timing, and Tannenbaum is honest enough to admit he might change his mind in 60 days.