October 27, 2023
Guggenheim Fourth Quarter 2023 High-Yield and Bank Loan Outlook: Technical Support Remains Strong but Fundamental Pressures to Grow in 2024
NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Fourth Quarter 2023 High-Yield and Bank Loan Outlook. Titled “Technical Support Remains Strong But Fundamental Pressures to Grow in 2024,” the report discusses the prospects for credit assets and the rise of private debt.
Among the highlights in the 16-page report:
- Recent developments have reintroduced uncertainty about the economic and interest rate landscape in 2024, potentially resembling the conditions of 2023. That said, despite the prevailing uncertainty throughout 2023, risk asset valuations have remained relatively stable since the regional banking sector’s turmoil subsided.
- Despite some challenges in the credit environment this year, high-yield corporate bonds posted solid year-to-date total returns of 6 percent while bank loans delivered a 10 percent total return, with a fraction of the volatility seen in other markets.
- Strong demand for leveraged credit from institutional investors clashed with a shortage of primary issuance. These technical dynamics continue to support credit risk premiums.
- The ICE BofA High-Yield Corporate Bond Index shrunk by $30 billion in face value this year due to rating upgrades, maturities, and defaults. Rising stars were the leading reason for index exits, and our analysis reveals another $70–$110 billion that is priced for an upgrade.
- The emergence of private credit over the last couple of years will be an especially important trend to watch for syndicated bank loans. Private credit channels have seen twice as many transactions as the syndicated market in the first two quarters of 2023 combined.
- Next year could potentially mark the third consecutive year of high-yield issuers witnessing a contraction in outstanding debt..
- Our increased attention to technical dynamics this quarter reflects their influence in shaping valuations in 2023.
- Our economic outlook remains unchanged after the September FOMC meeting. We believe the cumulative impact of rate hikes has yet to be fully felt, and many of the factors that have bolstered consumption and economic activity are now waning.
- While we believe it is important to closely monitor the influence of technical trends, we maintain our perspective that over a long-term horizon, technical dynamics assume a secondary role to fundamentals.
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 9.30.2023 and include leverage of $15.9bn. 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 Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners 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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