Debt markets are on the verge of a serious evaluation as the previously complacent situation starts to deteriorate, according to Victor Khosla, who is the creator of credit investor Strategic Value Partners LLC.

Uncertainty surrounding the US’s global relationships and the transformation of the economy will persist beyond April 2, when US tariffs are scheduled to come into effect, Khosla mentioned.

Consumer sentiment and industrial growth are beginning to decline, prompting his firm to increase its focus on consumer, industry, and manufacturing investments. Khosla also mentioned that it is time to expand property investments, with Germany holding potential while the UK and Ireland offer more attractive opportunities.

Khosla stated, "There comes a moment when real estate becomes intriguing. That moment is here."

As interest rates rise, companies will face higher borrowing costs as their debts mature.

Khosla highlighted that there have been more defaults than anticipated, even though the economy is not in a recession. While major bankruptcies like Lehman Brothers are not prevalent, Khosla emphasized the frenzied activity happening beneath the surface.

Despite tight spreads indicating lingering credit complacency, Khosla believes that there is potential to earn 8% from junk bonds, which would be appealing to equity investors today.

Nevertheless, Khosla stressed that a critical juncture has arrived.