/perspectives/portfolio-strategy/q1-2019-fixed-income-outlook

Late-Cycle Drama Is Unfolding

Risk assets will likely enjoy another rally while the Fed stays on hold, but the pause will only allow excesses to become more pronounced.

March 07, 2019


Fixed Income Outlook video

Adam Bloch and Matt Bush share insights from the First Quarter Fixed-Income Outlook


Fixed-Income Outlook

First Quarter 2019

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

  • In this environment where we believe credit spreads are not enough to compensate for risks, it is prudent to stay up in quality and maintain adequate liquidity to pick up undervalued credits during more opportune times.
  • We believe that the Fed will pause rate increases in the first half of 2019, with the risk that this pause could last longer. Additionally, the possibility of a rate cut cannot be ruled out.
  • The Fed pause is supportive of a rally across risk assets in the near term, but it will also allow excesses to continue to build in the system.
  • Many of the concerning trends previously discussed by our sector teams, including the potential for high downgrade volume in the investment-grade market and defaults in certain credit sectors, remain at the forefront of our long-term thinking.
  • Our baseline forecast now envisions one more hike later in the year, with balance sheet runoff ending before year-end. Further rate hikes may be required in 2020 should inflation expectations begin to rise meaningfully.
  • Our recession forecasting tools continue to point to a downturn starting by mid-2020.
 
 
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.

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FEATURED PERSPECTIVES

May 17, 2019

Quantifying the Credit Risk and Default Runway

After the recession starts, high-yield bond and bank loan issuers have at least a 12-month runway before we experience a large wave of defaults.

April 29, 2019

The Next Step for the Fed Could Be a Hike

Signs of economic strength suggest the market is wrong to price in a rate cut.

April 09, 2019

Forecasting the Next Recession: How Severe Will the Next Recession Be?

Our Recession Probability Model and Recession Dashboard suggest the recession could come as early as first half of 2020 but may not be as severe as past recessions.


VIDEO

First Quarter 2019 Fixed-Income Outlook 

First Quarter 2019 Fixed-Income Outlook

Portfolio Manager Adam Bloch and Macroeconomic and Investment Research Group Director Matt Bush share insights from the first quarter 2019 Fixed-Income Outlook.

Core Fixed-Income Conundrum 

Solving the Core Conundrum

Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.







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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 Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

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