/institutional/perspectives/sector-views/high-yield-and-bank-loan-outlook-march-2022

Credit Returns in the Upcoming Fed Hiking Cycle

Exploring the performance of leveraged credit in past tightening cycles.

March 04, 2022


High-Yield and Bank Loan Outlook

First Quarter 2022

Here are the key takeaways from our latest High-Yield and Bank Loan Outlook report:

  • Given broadening price pressures in the economy, there is growing urgency for the Fed to begin a rate hiking cycle in 2022 and shrink the size of its balance sheet.
  • High yield and bank loan investors need not fear a Fed tightening cycle, since rate hikes typically occur when growth is strong and defaults are low.
  • Both sectors carry features that can support returns as the Fed is raising interest rates, namely spread compression in high-yield corporates and floating coupons in bank loans.
  • The floating-rate coupon on bank loans should rise in tandem with the general movement of short-term interest rates and cushion their performance.
  • We slightly favor bank loans primarily due to their low duration profile and wider discount margins that leave room for spread compression.
Important Notices and Disclosures

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, but not necessarily those of Guggenheim Partners, LLC 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. 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.

Investing involves risk, including the possible loss of principal. The potential impacts of the COVID-19 outbreak are increasingly uncertain, difficult to assess and impossible to predict, and may result in significant losses. 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.

One basis point is equal to 0.01 percent.

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 Corporate Funding, LLC, Guggenheim Partners Europe Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management

©2022, Guggenheim Partners, LLC. 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.


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VIDEOS AND PODCASTS

Recession ‘Inevitable’ as the Fed Fights Inflation 

Recession ‘Inevitable’ as the Fed Fights Inflation

Scott Minerd, Chairman of Investments and Guggenheim Partners Global CIO, joins Bloomberg TV on Fed Day to discuss the Federal Reserve’s largest rate hike since 1994.

Macro Markets Podcast 

Macro Markets Podcast: Episode #16: Fed Watch: A Deep Dive into 75

Brian Smedley, Guggenheim’s Chief Economist and Head of Macroeconomic and Investment Research, discusses the impact of the Fed’s 0.75% rate hike on markets and the economy.







© Guggenheim Investments. All rights reserved.

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 Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.