Oaktree Capital co-chairman Howard Marks says that while the Fed’s efforts have bolstered debt prices, the support is temporary and credit markets will become distressed when the Fed support lets up. This according to a recent Bloomberg article.

Marks told Bloomberg, “Those of us in the markets believe that stocks and bonds are selling at prices they wouldn’t sell at if the Fed were not the dominant force. So, if the Fed were to recede, we would all take over as buyers, but I don’t think at these levels.” The article notes that this presents a dilemma for policy makers scrambling to keep big employers in business: “The prospect of intervention on that scale sparked an immediate surge in demand for both investment-grade and junk bonds. Now that the program has started buying, it’s unclear what happens when—and if—the funding runs out.”

While some investors would argue that stock and bond prices are justified by the promise of enduring central bank liquidity, Marks disagrees. Rather, he expects a slowing recovery from the coronavirus pandemic and expects “plenty” of debt defaults and bankruptcies when corporate borrowers face dwindling cash reserves in the coming months.

“There are large, highly levered companies and investment vehicles that the government and Fed rescue program is not likely to reach and take care of,” Marks said.