Pimco Says ‘Credit Loss Cycle’ Has Begun, Likes Quality Debt (1)

Pacific Investment Management Co. is warning that the “credit loss cycle is upon us” as heavy spending on artificial intelligence could widen economic outcomes and hit lower-quality borrowers.

Pimco’s Richard Clarida, Andrew Balls and Daniel Ivascyn said in the firm’s latest annual secular outlook report that “the default cycle is reasserting itself, and we expect significantly higher losses in lower-quality credit such as leveraged and private direct lending.”

Pimco, which manages $2.3 trillion in assets, said the AI buildout could widen the range of economic outcomes over the next five years while leaving weaker and more heavily leveraged borrowers ...