/perspectives/sector-views/high-yield-and-bank-loan-outlook-august-2020

The Impact of the Fed’s Corporate Credit Facilities

As a result of the Federal Reserve’s efforts to shore up credit markets, the leveraged credit sector has delivered stellar performance since the lows in March.

August 19, 2020


High-Yield and Bank Loan Outlook

Third Quarter 2020

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

  • With the Fed’s Secondary Market Corporate Credit Facility targeting a normalization of credit market functioning, we are monitoring metrics, including the level of credit spreads, credit curve shape, trading volume, and bid-ask spreads.
  • There is still scope for improvement in the level of credit spreads. BBB-rated spreads remain 37 basis points wider than January levels. BB-rated corporate bond spreads are 124 basis points wider than January levels, and B-rated corporate bonds are 130 basis points wider.
  • High-yield credit curves remain inverted. In the BB-rated sector, the difference between a nine- to 10-year maturity bond spread and a two- to three-year maturity bond spread is -36 basis points.
  • Rating migration has been negative and default rates have risen, reminding us that the Fed’s programs cannot repair solvency issues.
  • Our work continues to focus on opportunistically capturing value as the Fed’s programs support credit markets. As such, we are somewhat bullish.
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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.

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

©2020, 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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Investing involves risk, including the possible loss of principal.

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. Securities offered through Guggenheim Funds Distributors, LLC.

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