Bonds have been the default fixed income allocation for decades. Private credit is now asking a direct question of every allocator holding them: is a public bond actually the safer instrument, or just the more familiar one.
Private credit and bonds both generate income from lending, but the similarity ends at structure. A bond is an unsecured promise from a borrower to a market. First-lien private credit is a secured claim on a specific, appraised asset, and that difference shows up directly in what happens when something goes wrong.
01 — The Comparison
The Comparison Everyone Skips
Where the yield premium actually comes from, and why most comparisons never ask.
Most private credit content stops at yield. Private credit offers a headline number, higher yields than a bond at first glance, conclusion reached, allocation decided.
That comparison is incomplete, and any allocator who has actually built a fixed income book knows it. Yield without a clear picture of what backs it is not a comparison. It is a number.
A real private credit vs bonds comparison has to go further than that. It has to ask what specifically backs the return on each side, not just which number is bigger.
That instinct treats the private credit space as a single category, when in practice it spans everything from unsecured direct lending to first-lien real estate debt. It is also easy to conflate with private equity, a different asset class entirely, built around ownership stakes rather than a lender’s claim.
The distinction matters as much as the comparison to bonds itself, and it is the first thing to check before treating any private credit investment as interchangeable with another.
Where the Yield Premium Actually Comes From
The real question is where the yield premium comes from. In liquid credit markets, yield above the risk-free rate compensates for two things: credit risk (the issuer might not pay) and duration risk (rates might move against you before maturity). A high-yield bond carries both, priced by a market that reprices the bond’s value daily whether or not anything about the underlying borrower has changed.
First-lien real estate debt prices differently. The yield premium compensates for illiquidity and origination effort, not primarily for duration exposure, because the loan is held to term against a fixed, appraised collateral value rather than marked to a fluctuating secondary market.
That is not a marginal distinction. It is the entire basis for why two instruments with similar headline yields can carry very different risk profiles.
What the Numbers Actually Show
According to Morningstar, average yields on U.S. high-yield corporate bonds have generally run in the 6 to 8 percent range in recent cycles, moving with credit spreads and the broader rate environment. Investment-grade bonds run lower still, typically in the 4 to 5 percent range.
Yield ranges, side by side
Bar = midpoint · whiskers = range
Bond ranges: Morningstar, recent cycles. Blue Bay Fund I figure is a target annual yield, not a historical result.
Both figures move with the Federal Reserve’s rate path, since bond prices adjust immediately when rates shift, even when the underlying issuer’s creditworthiness hasn’t changed at all.
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See how the structure holds up under scrutiny.
A bond holder’s return is subject to two things happening correctly: the issuer paying as promised, and the market’s pricing of that issuer’s risk staying roughly stable. Neither is within the investor’s control, and both can move independently of the other.
If your bond issuer defaulted tomorrow, what specific asset would you actually be pointing to?
What a Bond Actually Leaves You Holding
This is where the structures diverge completely.
A bond is a claim on the general creditworthiness of the issuer. If that issuer defaults, bondholders stand in line with other unsecured or structurally subordinated creditors, and recovery depends on what remains after the bankruptcy process runs its course. There is no specific asset attached to any individual bond that a holder can point to and say, this backs my position.
02 — Duration
Where Duration Risk Actually Lives
The variable most fixed income allocators underweight, until it moves against them.
Duration risk, the technical term for a bond’s interest rate sensitivity, is the part of bond investing most allocators underprice mentally, even when they understand it technically. It is also the piece that behaves most differently across rate environments, which is exactly why it deserves more attention than a single yield comparison gives it.
A 10-year Treasury or investment-grade bond purchased today is subject to mark-to-market losses if rates rise before maturity, even if the issuer never misses a payment. An allocator who needs liquidity before maturity can be forced to realize that loss regardless of the underlying credit quality. The Federal Reserve’s rate decisions, not the borrower’s payment history, become the dominant variable in the bond’s near-term value.
The Illiquidity Tradeoff
First-lien private credit held to term does not carry that same mark-to-market exposure, because there is no active secondary market repricing the loan daily against rate moves. The tradeoff is illiquidity: capital committed to a fund like Blue Bay Fund I is not available on demand the way a liquid bond position is.
That tradeoff is real, and it should be evaluated honestly rather than glossed over.
What it buys in exchange is a return profile that is not correlated to daily rate sentiment. For an allocator building a book meant to withstand a full rate cycle, that decorrelation has real value, independent of the headline yield number.
How much of your fixed income yield is compensation for a risk you can name, and how much is compensation for a risk you’ve never had to think about?
03 — The Collateral
What Actually Backs Blue Bay Fund I
The specific answer to both questions above, not a general one.
Paragraph
Blue Bay Fund I originates loans in first-lien position against real property, targeting loan-to-value under 70 percent on every loan. First-lien means exactly what it sounds like: this claim sits at the top of the capital structure, ahead of any other lender or equity holder on that property.
The equity cushion
The property itself would need to lose more than 30 percent of its appraised value before principal is genuinely at risk.
Edwin’s Track Record, and What He Has at Stake
Edwin D. Epperson III, a former U.S. Army Green Beret and Combat Diver who now serves as fund manager of Blue Bay Fund I, has originated more than 150 deals using this exact structure. His approach to underwriting carries the same discipline from that background: conservative loan-to-value, documented borrower criteria, and no exceptions made under pressure to deploy capital faster.
04 — Side by Side
How Blue Bay Fund I Compares
The structure, side by side, without adjectives doing the work.
Side by side
The structure, without adjectives doing the work.
| Attribute | Blue Bay Fund ISecured by real property | Investment-Grade BondsPublic, issuer credit | High-Yield BondsPublic, issuer credit |
|---|---|---|---|
| Target yield | 8–12% | 4–5% | 6–8% |
| Backing | First-lien real property, sub‑70% LTV | Issuer creditworthiness | Issuer creditworthiness |
| Price movement before maturity | Not marked to a daily secondary market | Marks to market with rate moves | Marks to market with rate and credit spread moves |
| Recovery on default | Property value, appraised and collateralized | Unsecured or subordinated claim, bankruptcy-dependent | Unsecured or subordinated claim, bankruptcy-dependent |
| Manager alignment | Manager funds every loan personally first | — | — |
| Liquidity | Structured redemption windows, not daily | Daily, subject to price | Daily, subject to price |
If you take one number from this table, take the loan-to-value line. Under 70 percent LTV means the underlying property would need to lose nearly a third of its appraised value before Blue Bay Fund I investors would see any principal impairment, a structural floor that unsecured bond positions simply do not have.
Before you allocate
Walk through the underwriting with Edwin.
05 — The Fit
Evaluating the Fit
Not which instrument is better. Which one you can actually evaluate.
None of this is an argument that bonds are a bad instrument. They are liquid, well understood, and serve a real role in most portfolios.
The argument is narrower: an allocator comparing yield numbers alone is comparing the wrong thing. The real benefit of private credit, at least in its first-lien form, isn’t the yield number itself. It’s what backs it.
What Blue Bay Fund I Actually Offers
The right comparison asks what specifically secures private credit loans, how exposed that backing is to forces outside the borrower’s control, and what happens in the specific scenario where something goes wrong. Not every corner of the private credit market answers that question the same way, which is exactly why structure deserves more scrutiny than the category label does.
Blue Bay Fund I at a glance
Blue Bay Fund I targets annual yields of 10 to 15 percent, secured by first-lien mortgages on real property at conservative loan-to-values, with monthly distributions and no tenant or property management exposure to the investor.
Every loan is funded by Edwin personally before investor capital enters. Accredited investors are welcome to review the underwriting criteria, loan tape, and historical performance directly.
Frequently Asked Questions
Is private credit riskier than bonds?
Risk in private credit and bonds comes from different sources rather than different magnitudes. Bonds carry duration risk from daily rate-driven repricing and unsecured credit exposure. First-lien private credit like Blue Bay Fund I carries illiquidity risk and origination risk, offset by direct collateral backing that unsecured bonds do not have.
Why does private credit yield more than bonds?
The yield premium in first-lien private credit primarily compensates for illiquidity and origination effort, not duration exposure. The position is not marked to a daily secondary market the way a bond is. Investors seeking high yield and higher income than public fixed income typically offers should understand that tradeoff before allocating, not after.
What happens if a borrower defaults on a private credit loan?
As first-lien lender, Blue Bay Fund I initiates foreclosure proceedings. At sub-70 percent loan-to-value, the property’s appraised value provides a meaningful recovery cushion before investor principal is impacted.
Is private credit more or less liquid than bonds?
Less liquid. Bonds trade daily on public markets. Private credit funds like Blue Bay Fund I use structured redemption windows rather than daily liquidity, which is the direct tradeoff for not being marked to market against daily rate moves.
How does loan-to-value protect a private credit investor differently than a bond’s credit rating protects a bondholder?
A credit rating estimates the probability an issuer pays as promised, but provides no specific asset if it doesn’t. Loan-to-value measures the actual equity cushion in a specific, appraised property, meaning the collateral must lose a defined percentage of value before principal is at risk, independent of the borrower’s broader financial health.
In Closing
The Bottom Line
Bonds and private credit are both lending instruments, but they price risk from entirely different sources: one from daily market sentiment and unsecured issuer credit, the other from a specific, appraised, first-position claim on real property.
The comparison that matters isn’t which number is higher. It’s which structure you actually understand and can evaluate on its own terms. Blue Bay Fund I welcomes that evaluation directly, with the underwriting, loan tape, and track record available to any accredited investor who wants to see it firsthand.
A direct conversation
Ask What Backs the Yield
A yield is only as strong as the asset standing behind it. Bring your questions about collateral, loan-to-value, and how every loan is underwritten, and expect a specific answer to each one.
Speak with EdwinEdwin D. Epperson III
Managing Principal, Blue Bay Fund I
With Honor,
Edwin D. Epperson III,
Manager & CEO
Soli Deo Gloria
