March 04, 2022
Guggenheim First Quarter 2022 High-Yield and Bank Loan Outlook: Looking at Yields in High-Yield Credit
NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its First Quarter 2022 High-Yield and Bank Loan Outlook. Titled “Credit Returns in the Upcoming Fed Hiking Cycle,” the report explores the outlook for credit as the Federal Reserve (Fed) begins raising interest rates.
Among the highlights in the 13-page report:
- Given broadening price pressures in the economy, there is growing urgency for the Fed to begin a rate hiking cycle in 2022 and shrink the size of its balance sheet.
- While the situation in Ukraine remains a wild card, we now expect the Fed will hike by at least four times this year, with the risk of larger or more frequent hikes if the inflation data continues to run hot.
- Credit investors need not fear a Fed tightening cycle, since rate hikes typically occur when growth is strong and defaults are low.
- We believe leveraged credit continues to offer an attractive opportunity for fixed-income portfolio as the Fed is only about to begin withdrawing monetary policy accommodation. Both sectors carry features that can support returns as the Fed is raising interest rates, namely spread compression in high-yield corporates and floating coupons in bank loans.
- History shows that high-yield corporate bonds have outperformed loans in recent tightening cycles due primarily to spread compression.
- The recent backup in credit spreads has now added some upside to corporate bond returns that evens the positive return potential between bank loans and high-yield corporates.
- Ratings upgrades presents an interesting value proposition in both sectors.
- The floating-rate coupon on bank loans should rise in tandem with the general movement of short-term interest rates and cushion their performance.
- We slightly favor bank loans primarily due to their low duration profile and wider discount margins that leave room for spread compression.
For more information, please visit www.guggenheiminvestments.com.
About Guggenheim Investments
Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $271 billion¹ in total assets across fixed income, equity, and alternative strategies. We focus on the return and risk needs of insurance companies, corporate and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers, and high-net-worth investors. Our 260+ investment professionals perform rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and underfollowed. This approach to investment management has enabled us to deliver innovative strategies providing diversification opportunities and attractive long-term results.
1Guggenheim Investments assets under management are as of 12.31.2021 and include leverage of $20.7bn. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.
Investing involves risk, including the possible loss of principal. The potential impacts of the COVID-19 outbreak are increasingly uncertain, difficult to assess and impossible to predict, and may result in significant losses. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their value to decline. High-yield and unrated debt securities are at a greater risk of default than investment grade bonds and may be less liquid, which may increase volatility.
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