The "total leverage system" has not come down over the last couple of years, Jeffrey Kronthal, co-managing partner and co-CIO of KLS Diversified Asset Management, told CNBC on Wednesday."
"There's a recognition here that this deleveraging process is a very long process," said Kronthal, whose hedge fund specializes in fixed income. "It's a pretty volatile process."
What has happened is private debt turned into public debt. "Household debt has come down," he said. "Credit card debt has come down. But I still think when you look at people's balance sheets, and you really look at household debt relative to [gross domestic product], we've increased 50 percent over the last 10 to 15 years and we've come back down 10 percent."
"We still have a long way to go," said Kronthal.
He went on to say the expectation of yields over 10 years versus inflation "have flattened out."
The 10-year Treasurybond "hit about 2.25 [percent of yield] last year, backed up to 3.60 [and] we're back down to 2.20," explained Kronthal.
However, he noted, because of investors' need for safety, there will be a lot of demand for Treasurys over time.
Lastly, right now "credit quality long-term is probably still there unless we go into a severe recession, which I don't see," concluded Kronthal. "So upper end of high yield, the structured finance market likes commercial real estate."
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