November 06, 2020
Guggenheim Fourth Quarter 2020 High-Yield and Bank Loan Outlook: Opportunities in Credit Amid Challenging Conditions
NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Fourth Quarter 2020 High-Yield and Bank Loan Outlook. Titled “Opportunities in Credit Amid Challenging Conditions,” the report explains that while credit spreads have plenty of room to tighten, there is an overhang of a challenging credit environment as measured by market default rates, rating migration, and fundamentals.
Among the highlights in the 16-page report:
- Central bank action has played a critical role in supporting credit availability, which has tempered forward looking default rate expectations. However, we expect some sectors, namely energy and retail, will continue to experience defaults going forward.
- Avoiding those defaults is crucial, because investors recover an average of only 40 and 70 percent of par in high-yield and bank loan default situations, respectively, and year-to-date recoveries have been significantly lower than those averages.
- Credit spreads remain near the 60th percentile of historical observations dating back to 1998, giving them plenty of room to tighten.
- The aggregate 12-month trailing high-yield net leverage ratio of 4.5x has already exceeded the 2008–2009 default cycle peak of 3.9x, and is likely to get worse as 2019 data falls out of the calculation.
- We have selectively added high-yield exposure in longer maturity bonds this year, including in fallen angels.
- Our research shows fallen angel prices tend to rebound after they enter the high-yield index, supporting the existence of a structural anomaly that causes them to be oversold around the index transition period to spreads that are wider than is justified by fundamentals.
- All indications point to continued improvement in below-investment-grade bonds. Any setback should be viewed as temporary and, as such, an opportunity to add to positions.
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 $233 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 300+ 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 9.30.2020. The assets include leverage of $14bn for assets under management. 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, 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.
One basis point is equal to 0.01 percent.
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