/perspectives/sector-views/bank-loans-favorable-technicals-lift-prices
Bank Loans: Favorable Technicals Lift Prices
Secondary loan prices rose in the second quarter on the back of robust CLO demand.
As of the end of the second quarter, bank loan mutual funds and exchange-traded funds have witnessed nine straight months of net redemptions, shrinking their share of the loan market down to approximately 10 percent from 17 percent in June of last year. Robust demand from a high volume of CLO originations, on the other hand, overwhelmed the supply of loans in the second quarter. Visible demand in the second quarter was almost $11 billion greater than the change in loans outstanding, according to S&P LCD, solely due to weak loan issuance against heavy CLO originations in April. This helped lift secondary loan prices and tighten spreads on new issue B-rated loans, which represented the majority of loan issuance this year.
Bank Loan Technical Dynamics Help Drive Valuations
Mutual fund outflows have continued for nine consecutive months, but robust CLO volume in the second quarter more than offset visible net outflows and helped tighten discount margins. Although not the sole driver, the balance between net visible flows and loan issuance can drive spreads wider or tighter.
Source: Guggenheim Investments, S&P LCD, Credit Suisse. Data as of 6.30.2019.
The Credit Suisse Leveraged Loan index gained 1.6 percent in the second quarter, boosting the year-to-date return to 5.4 percent. This represents the index’s best first-half performance since 2009. Performance across all rating categories was positive in the second quarter, with BBs gaining 1.7 percent, Bs gaining 1.6 percent, and CCCs gaining 0.6 percent.
Over the next few months, investors should expect to see a reduction in loan coupons as the Fed delivers rate cuts. The index performance attributed to interest returns since January already reflects some decline in the one-month and three-month London inter-bank offered rate (Libor) since the market began to price in Fed easing. We do not expect this to have an impact on CLO demand for loans given that they will also see liability costs decline. We may see some pickup in loan supply in the third quarter, but August tends to be a quiet month for primary markets so any pickup in issuance would likely come in September.
Late Summer Loan Issuance Tends to be Muted
We may see some pickup in loan supply in the third quarter, but August tends to be a quiet month for primary markets so any pickup in issuance would likely come in September.
Source: Guggenheim Investments, S&P LCD. Data as of 6.30.2019. Based on institutional loan issuance only.
—Thomas Hauser, Senior Managing Director; Christopher Keywork, Managing Director
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. It contains opinions of the authors but not necessarily those of Guggenheim Partners or its subsidiaries. The authors’ opinions are subject to change without notice. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is no guarantee of future results.
Investing involves risk. In general, the value of fixed-income securities fall when interest rates rise. High-yield securities present more liquidity and credit risk than investment grade bonds and may be subject to greater volatility. Asset-backed securities, including mortgage-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 risk. Investments in floating rate senior secured syndicated bank loans and other floating rate securities involve special types of risks, including credit risk, interest rate risk, liquidity risk and prepayment risk. 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.
©2019, 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.
VIDEO
Portfolio Manager Adam Bloch and Matt Bush, a Director in the Macroeconomic and Investment Research Group, share insights from the third quarter 2019 Fixed-Income Outlook.
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.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
*Assets under management is as of 09.30.2019 and includes leverage of $11.8bn. 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.
This is not an offer to sell nor a solicitation of an offer to buy the securities herein. Only a Guggenheim Credit Income Fund 2019 (GCIF 2019) prospectus makes such an offer. This material is authorized only when it is accompanied or preceded by a GCIF 2019 prospectus. Neither the SEC nor the Attorney General of the State of New York nor any other state regulator has passed on or endorsed the merits of this offering. Any representation to the contrary is a criminal offense. Securities are offered through Guggenheim Funds Distributors, LLC, member of FINRA/SIPC, as Dealer Manager.
©
Guggenheim Investments. All rights reserved.
Research our firm with FINRA Broker Check.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such 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. All content has been provided for informational or educational purposes only and 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. Investing involves risk, including the possible loss of principal.
By choosing an option below, the next time you return to the site, your home page will automatically
be set to this site. You can change your preference at any time.
We have saved your site preference as
Institutional Investors. To change this, update your
preferences.
United States Important Legal Information
By confirming below that you are an Institutional Investor, you will gain access to information on this website (the “Website”) that is intended exclusively for Institutional Investors and, as such, the information should not be relied upon by individual investors. This Website and any product, content, information, tools or services provided or available through the Website (collectively, the “Services”) are provided to Institutional Investors for informational purposes only and do not constitute a recommendation to buy or sell any security or fund interest. Nothing on the Website shall be considered a solicitation for the offering of any investment product or service to any person in any jurisdiction where such solicitation or offering may not lawfully be made. By accessing this Website, you expressly acknowledge and agree that the Website and the Services provided on or through the Website are provided on an as is/as available basis, and except as partnered by law, neither Guggenheim Investments and it parents, subsidiaries and affiliates nor any third party has any responsibility to maintain the website or the Services offered on or through the Website or to supply corrections or updates for the same. You understand that the information provided on this Website is not intended to provide, and should not be relied upon for, tax, legal, accounting or investment advice. You also agree that the terms provided herein with respect to the access and use of the Website are supplemental to and shall not void or modify the Terms of Use in effect for the Website. The information on this Website is solely intended for use by Institutional Investors as defined below: banks, savings and loan associations, insurance companies, and registered investment companies; registered investment advisers; individual investors and other entities with total assets of at least $50 million; governmental entities; employee benefit (retirement) plans, or multiple employee benefit plans offered to employees of the same employer, that in the aggregate have at least 100 participants, but does not include any participant of such plans; member firms or registered person of such a member; or person(s) acting solely on behalf of any such Institutional Investor.
By clicking the "I confirm" information link the user agrees that: “I have read the terms detailed and confirm that I am an Institutional Investor and that I wish to proceed.”