/institutional/perspectives/sector-views/high-yield-and-bank-loan-outlook-november-2021

Are High-Yield Markets Misjudging Evergrande Risk?

High-yield investors should be weighing the risks of contagion more carefully.

November 24, 2021


High-Yield and Bank Loan Outlook

Fourth Quarter 2021

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

  • While the Asia high-yield sector reflects concerns over Evergrande and other overextended Chinese property companies showing distress, other credit markets—which usually exhibit positive correlation—have not demonstrated indications of worry.
  • This unusual situation represents the market’s faith that China will successfully manage the unwinding of Evergrande’s debt.
  • The U.S. high-yield market is no longer the domestic island many participants perceive it to be. This interconnectedness means that issuers in the U.S. high-yield index are susceptible to a potential China growth slowdown through second or third-order effects.
  • Abundant central bank-driven liquidity may also be causing U.S. high-yield investors to become complacent about risk, but central banks are moving to withdraw some accommodation.
  • Very strong corporate fundamentals and the improving economy lead us to remain constructive on the U.S. high-yield market, but we are mindful of the risks as we move along stages of the cycle.
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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.

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