October 29, 2019
Guggenheim First Quarter 2020 High-Yield and Bank Loan Outlook: The Relative Value Case for Bank Loans Over High Yield
NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Fourth Quarter 2019 High-Yield and Bank Loan Outlook. Titled “Don’t Be Tempted by CCC Bonds and Loans,” the report discusses the risk that spreads on lower-quality corporate bonds and bank loans are more likely to widen than tighten from here.
Among the highlights in the 16-page report:
- At three-year wides, spreads might look appealing. However, when we compare the potential upside in another year of coupon-clipping and some spread tightening to the potential downside in a year of spreads widening and high defaults, current CCC spreads are not enough compensation to justify the risk.
- As of Sept. 30, 2019, high-yield CCC spreads are at 1,037 basis points, while CCC loans are at 1,329 basis points. Both are at their widest levels since November 2016.
- Exposure to CCC-rated debt in total leveraged credit (aggregating high-yield bonds and institutional loans) is only 8 percent, the lowest since 2000.
- Although the market exposure to CCC is already smaller than in the past, investors should continue to limit exposure to this rating category despite recent cheapening because of the asymmetry of potential spread outcomes.
- In a bear market scenario, we think CCC corporate bond spreads could widen by another 1,300 basis points, while our analysis of a bull market scenario suggests they could tighten by 430 basis points.
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 $213 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 are as of 9.30.2019. 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, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited, 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 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.
One basis point is equal to 0.01 percent.
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