November 21, 2022
Guggenheim Fourth Quarter 2022 High-Yield and Bank Loan Outlook: A Strong Credit Market Shapes the Default Outlook
NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Fourth Quarter 2022 High-Yield and Bank Loan Outlook. Titled “A Strong Credit Market Shapes the Default Outlook,” the report discusses ways in which the coming U.S. recession raises the probability of rising defaults in credit markets.
Among the highlights in the 16-page report:
- The stress in this cycle is driven by unforgiving high interest rates as opposed to previous cycles triggered by a specific sector-related shock.
- The default rate is likely to reach 3–3.5 percent by the end of 2023 in U.S. high yield and bank loan sectors but will continue rising after that as a likely longer-than-average recession ensues.
- Our biggest concern as we consider the outlook for credit is the possible lack of a typical monetary and fiscal policy response that occurs when the U.S. economy undergoes a recession, due to fears of reigniting above-target inflation.
- Despite growing headwinds for the economy, we remain encouraged by the financial results we see across a large portion of the credit market. Debt issuers are heading into this slowdown in good financial shape, with strong balance sheets and historically high earnings.
- Given solid credit fundamentals, we view yields and discounted bond prices as offering the most attractive opportunity to portfolios in over a decade.
- After the recent rally, yields and spreads remain near the most attractive they have been in the past decade, and we think risk premiums in higher-quality high-yield compensate for default risk over the next 24 months.
- Investors must be aware of downside risks that remain while the economy absorbs the full extent of policy tightening.
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 $218 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 250+ 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 9.30.2022 and include leverage of $17bn. 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 Partners 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. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their values 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. Investors in asset-backed securities, including mortgage-backed securities and collateralized loan obligations (“CLOs”), generally receive payments that are part interest and part return of principal. These payments may vary based on the rate loans are repaid. Some asset-backed securities may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity and valuation risk. CLOs bear similar risks to investing in loans directly, such as credit, interest rate, counterparty, prepayment, liquidity, and valuation risks. Loans are often below investment grade, may be unrated, and typically offer a fixed or floating interest rate.
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