Alberto Gallo, co-founder of Andromeda Capital Management UK LLP, has sounded the alarm on credit markets, pointing to signs of extreme complacency as credit spreads hover at historic lows that fail to reflect underlying risks. He cautions that bondholders are heading for losses as risk shifts structurally from equities and physical assets toward fixed income, a trend accelerated by record investment flows and surging government spending.

Gallo highlighted that US Treasury Secretary Scott Bessent is caught in an "impossible trilemma": attempting to control the yield curve, avoid cutting the fiscal deficit, and maintain a strong dollar simultaneously. He warned that at least one of these three objectives must give way, with dollar depreciation emerging as the most likely release valve for the pressure. "Bessent is the captain, and bondholders are the passengers on the Titanic. When the iceberg hit, the bondholders—those passengers—did not rush for the lifeboats because they did not believe the Titanic would sink," he said in an interview.

The chief investment officer of the London-based credit hedge fund noted that massive issuance across public and private markets, coupled with central bank rate hikes, makes bonds and credit assets less attractive on a standalone basis, while equities and commodities retain stronger support. He also pointed out that credit spreads are "extremely tight," financial conditions remain too loose, and private credit continues to prop up companies with weak fundamentals.

In the current cycle, bonds offer no protection, and the slow pace of asset repricing stems from private credit's willingness to refinance lower-quality borrowers—a dynamic that only amplifies the magnitude of the eventual adjustment.