The biggest and most liquid parts of credit markets are sending a “sell signal,” said Dwight Scott, president of Blackstone Group Inc.’s debt investment arm. And that’s pushing the $142 billion manager deeper into private debt.

The central bank-fueled rally that drove yields on corporate bonds to almost record lows won’t persist into this year, Scott said in a Bloomberg Television interview on Friday. The Federal Reserve is projected to hold its interest rate benchmark steady in 2020 after three rate cuts last year.

“I don’t think that the things that drove last year can continue,” Scott said. “It’s a time, particularly in fixed income, to be a little more cautious.”

Scott said that his firm, GSO Capital Partners, sees value in what he called “protected areas” of debt markets. That includes leveraged loans, which have a higher priority in a company’s capital structure, offer floating rates, and haven’t yet rallied as strongly as high-yield bonds.

Late Cycle
GSO, watched closely by investors because it’s one of the largest and most active debt investment firms, also likes structured products and direct lending, Scott said.

See also: The Three Narratives Overshadowing Fixed Income Investing In 2020

Easy credit, low yields and relatively few defaults has made it difficult to invest and make money in what’s normally been one of GSO’s most-active strategies, distressed investing, Scott said. But that time will come again. “Now will set up the next distressed cycle, which is why it’s important for us to stay active,” he said.

Junk bonds yield 5.01% on average, according to Bloomberg Barclays index data, near the lowest level since 2014. Leveraged loans have had a hot start to the year with the average price rising to 97.34 from 96.72 at the end of 2019, according to S&P/LSTA indexes. But the loan market has remained below its post-crisis peaks.

GSO’s Evolution
Blackstone’s credit unit has undergone a series of changes over the years, winding down its hedge fund in favor of longer-term investments and naming Scott as president in June 2017.

Bennett Goodman, the last of GSO’s co-founders remaining at the firm, is exiting to build a family office, Bloomberg reported in August. He wound down most of his duties by year-end, stepping down as a senior managing director and board member while continuing to advise parts of Blackstone’s business.

Today the firm is building out and hiring in its structured products unit, which it will sell into the insurance markets and expand into its broader portfolio, Scott said.

The firm is also hiring for its technology team both on the west and east coasts. Blackstone sees technology companies getting larger, with more buyout activity, leading to demand for more capital from the firm.

Blackstone oversees around $554 billion in assets. The credit unit managed $141.9 billion as of quarter end, an increase of 9% year-over-year, making it the third-largest business unit at the firm.

This article was provided by Bloomberg News.