We expect an improvement in leveraged credit fundamentals on the back of an earnings recovery and macroeconomic conditions, but it appears the majority of this has already been priced into spreads. Entering 2017 with the tightest high-yield bond spreads since August 2014, we expect this will mostly be a year of clipping coupons in high yield.
- The loan market looks appealing as LIBOR is set to move above existing LIBOR floors and the demand for floating-rate products accelerates.
- The evolving geopolitical environment could create temporary turbulence.
- Assessing the balance of risks, we conclude that this is not yet the time to sell credit, but another year of double-digit returns in credit is unlikely.
- Combining measures of leverage, interest coverage, and return on capital in a single Corporate Health index allows us to estimate default rates 12 months in the future. Our work supports the view that 2017 will prove to be a more benign credit environment than 2016.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim").
Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
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*Guggenheim Investments total asset figure is as of 12.31.2016. The assets include leverage of $12.3bn for assets under management and $0.4bn for assets for which we provide administrative services.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.
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