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January 18, 2019

Guggenheim First Quarter 2019 High-Yield and Bank Loan Outlook: Too Much Leverage in the System to Handle an Economic Downturn


NEW YORK – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its First Quarter 2019 High-Yield and Bank Loan Outlook. Entitled “Up the Escalator, Down the Elevator,” the report reflects the outlook for leveraged finance within the context of monetary policy, the business cycle, and financial condition of the sector issuers.

Among the highlights in the 12-page report:

  • Market volatility will force the Federal Reserve to pause rate hikes in the first half of 2019 as an ongoing decline in equity prices, widening credit spreads, and tighter financial conditions foreshadow higher defaults in the next 12 months, but we believe it will resume tightening monetary policy later in the year.
  • We continue to believe that with real GDP growth running above potential, unemployment below full employment and falling, and core inflation near the 2 percent target, the 2019 data should be solid enough for the Fed to hike two times later in 2019.
  • Spread widening in the fourth quarter implies an increase in the 12-month trailing issuer-weighted high-yield default rate to 3.2 percent this year, from 1.8 percent currently. A lack of credit availability compared to recent years presents upside risk to this projection.
  • A Fed pause may support tighter credit spreads early in the year, but with investor confidence having been badly damaged, we believe 2019 will not be friendly to borrowers once the Fed resumes hiking interest rates.
  • Recent market volatility reminds us that risky asset returns typically follow an “up the escalator, down the elevator” motion—performance is slow and steady on the way up, but swift and steep on the way down, which supports a gradual de-risking as we have been recommending for several quarters.

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 $207 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.

 

Media Contact

Gerard Carney
Guggenheim Partners
310.871.9208
Gerard.Carney@guggenheimpartners.com

 

1Guggenheim Investments assets under management are as of 9.30.2018. The assets include leverage of $11.8bn 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 Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Real Estate, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited, and Guggenheim Partners India Management.

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