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Reviewing macroeconomic stressors, such as the ongoing impact of tariffs and rising energy costs, Hobbs noted it would be hard to raise rates.

“If you think about the constraints on the consumer, their financing costs are already fairly high,” he said on the Credit Exchange podcast with host Lisa Lee. “If you raise rates, you may just put us in something deeper… I think what the Fed and the Reserve Bank are thinking about is how do we get the economy and pricing to slow without using rates as a lever.”

The higher-for-longer rates that have characterised this cycle have created a conundrum, says Hobbs. “If you raise rates, you may stress the situation more. If you lower rates, you may accelerate inflation. So it’s a tough decision. But I do think we’re headed for a little bit of a slowdown on the macro side.”

As a credit specialist, Hobbs said his biggest fear is that the macro economy slows quickly, and spreads gap out significantly, while M&A does not create more opportunities.

In this scenario, not only do you have defaults, but you also have lower recoveries, because if the next two years don’t bring growth, cashflow is constrained.

“We’ve had really short dislocations. My biggest concern is that this will last a bit longer than the last three,” he added.