May 13, 2021
Guggenheim Second Quarter 2021 High-Yield and Bank Loan Outlook: In the Recovery Phase of the Credit Cycle
NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Second Quarter 2020 High-Yield and Bank Loan Outlook. Titled “In the Recovery Phase of the Credit Cycle," the report explains why fundamental conditions support positioning long in credit-sensitive fixed-income assets despite tight spreads.
Among the highlights in the 16-page report:
- Looking ahead, we believe that the length of the recovery phase and the expansion phase of this credit cycle will depend on the discipline of borrowers and investors, as well as other factors including interest rates, economic growth, government policy, and external shocks.
- The credit cycle framework suggests that we will progress to other phases before experiencing another wave of default activity, which eases our concerns about historically tight credit spreads.
- High-yield credit spreads have only been tighter 8 percent of the time dating back over 20 years. Our view is that fundamental conditions support staying long credit despite historically tight credit spreads, just as they did in the early 1990s when spreads stayed near similar levels for years.
- Earnings before interest, taxes, depreciation, and amortization (EBITDA) for publicly traded high-yield issuers are expected to grow 24 percent year-over-year based on median analyst estimates. We calculate that earnings growth alone would lower median leverage ratios to 4.1x, levels last seen at the end of 2018.
- Based on the pace of rating upgrades in the first quarter of 2021, almost 28 percent of the current high-yield index could receive an upgrade of at least one notch by the end of the year.
- As default probability falls with credit rating upgrades, it makes sense to look for value further down the credit rating spectrum.
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 $245 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 295+ 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 as of 3.31.2021 and include leverage of $15.4bn. 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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