/institutional/perspectives/sector-views/high-yield-and-bank-loan-outlook-april-2017

High-Yield and Bank Loan Outlook: Tight Spreads Call for Caution

We expect investors to harvest gains unless we see more concrete legislative progress on fiscal policy in Washington.

April 17, 2017


Report Highlights

  • The primary issuance market is witnessing a strong resurgence in activity, but refinancing makes up the lion’s share. Combining high-yield corporate bond and institutional leveraged loan issuance, refinancing volume represented 52 percent and 66 percent of total new issue activity in 2016 and the first quarter of 2017, respectively, compared to the 10-year average of 43 percent.
  • Borrowers shaved roughly 90 basis points from contractual spreads through refinancing transactions in the first quarter, effectively lowering investors’ spread income. This is something investors should factor into yield expectations going forward.
  • Even with adjusted return expectations, bank loans look more attractive than high-yield corporate bonds due to their higher position in the capital structure, their floating coupons, and their lower spread durations.
  • In this report we discuss our approach to adjusting yield expectations and managing risk amid elevated loan refinancings.
 
Important Notices and Disclosures

This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions 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 article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2017, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.

 


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