/institutional/perspectives/portfolio-strategy/q4-2018-fixed-income-outlook

Jogging to the Exits

Preparing for the market turbulence that typically occurs in the run up to a recession.

November 19, 2018


Fixed Income Outlook video

Steve Brown and Matt Bush share insights from the Fourth Quarter Fixed-Income Outlook


Fixed-Income Outlook

Fourth Quarter 2018

Here are the key takeaways from our latest Fixed-Income Outlook report:

  • Every recession since 1970 was caused by the Federal Reserve (Fed) tightening monetary policy too far in response to a decline in the unemployment rate to a level below full employment.
  • The market is just now coming to grips with our base case that the Fed will hike once more this year and four more times in 2019.
  • We will continue to upgrade quality, position defensively, and remain underweight duration relative to the benchmark, and limit exposure to the short and intermediary parts of the curve in anticipation of higher rates and a flatter yield curve.
  • We are seeing late-cycle excesses in many corners of the economy, particularly in corporate credit markets. A sizable wave of fallen angels this big would overwhelm the high-yield market.
  • The rise in rates is already hurting activity in housing and autos, two of the most rate-sensitive sectors, as rising rates dampen consumer sentiment.
 
 
Important Notices and Disclosures

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 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.

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the author or speaker, but not necessarily those of Guggenheim Partners or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.

© 2018 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.


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VIDEO

Forecasting the Next Recession 

Forecasting the Next Recession

Global CIO Scott Minerd and Head of Macroeconomic and Investment Research Brian Smedley provide context and commentary to complement our recent publication, “Forecasting the Next Recession.”

Macro Themes to Watch in 2018 

Macro Themes to Watch in 2018

In his market outlook, Global CIO Scott Minerd discusses the challenges of managing in a market melt up and highlights several charts from his recent piece, “10 Macro Themes to Watch in 2018.”







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