November 19, 2021
Guggenheim Fourth Quarter 2021 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 Fourth Quarter 2021 High-Yield and Bank Loan Outlook. Titled “Are High-Yield Markets Misjudging Evergrande Risk?,” the report explains why investors may be too sanguine about the Chinese government’s ability to successfully manage the unwinding of Evergrande debt.
Among the highlights in the 16-page report:
- While the Asia high-yield sector reflects concerns over Evergrande and other overextended Chinese property companies showing distress, other credit markets—which usually exhibit positive correlation—have not demonstrated indications of worry.
- This unusual situation represents the market’s faith that China will successfully manage the unwinding of Evergrande’s debt, but we think they are dismissing the long-term effects of Beijing’s crackdown on overleveraged industries.
- The U.S. high-yield market is no longer the domestic island many participants perceive it to be. Our research shows the typical high-yield issuer has 27 percent exposure to non-U.S. sources of revenue, with one sector showing as much as 44 percent exposure. This interconnectedness means that issuers in the U.S. high-yield index are susceptible to a potential China growth slowdown through second or third-order effects.
- Abundant central bank-driven liquidity may also be causing U.S. high-yield investors to become complacent about risk, but central banks are moving to withdraw some accommodation in the next 12 months, including the U.S. Federal Reserve (Fed) through a tapering of asset purchases.
- Very strong corporate fundamentals and the improving economy lead us to remain constructive on the U.S. high-yield market, but we are mindful of the risks as we move along stages of the cycle.
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 $259 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 275+ 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 9.30.2021 and include leverage of $17.9bn. 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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