/perspectives/sector-views/high-yield-and-bank-loan-outlook-january-2024

Higher-Quality Leveraged Credit Should Benefit from Fed Easing Cycle

Implications for credit investors

January 24, 2024


High-Yield and Bank Loan Outlook

First Quarter 2024

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

  • 2023 saw remarkable returns in leveraged credit markets, with high-yield bonds and bank loans returning 13.5 percent and 13 percent, respectively.
  • While 2024 will bring its own set of challenges, we think leveraged credit is poised to deliver another year of positive performance.
  • The anticipated Fed easing in 2024 could significantly boost borrowers’ ability to cover interest expenses, especially in the loan market.
  • Bank loan and corporate bond markets are well positioned to navigate this transition, but the ripple effects on smaller companies warrant close attention.
  • The primary factor supporting the credit opportunity is the current allure of all-in credit yields.
  • With interest rates likely falling from here and larger firms better positioned to benefit from market conditions, we think 2024 should prove to be a good time to be a credit investor.
Important Notices and Disclosures

Fixed-income investments are subject to credit, liquidity, interest rate and, depending on the instrument, counter-party risk. These risks may be increased to the extent fixed-income investments are concentrated in any one issuer, industry, region, or country. The market value of fixed-income investments generally will fluctuate with, among other things, the financial condition of the obligors on the underlying debt obligations or, with respect to synthetic securities, of the obligors on or issuers of the reference obligations, general economic conditions, the condition of certain financial markets, political events, developments, or trends in any particular industry. Fixed-income investments are subject to the possibility that interest rates could rise, causing their values to decline.

Bank loans are generally below investment grade and may become nonperforming or impaired for a variety of reasons. Nonperforming or impaired loans may require substantial workout negotiations or restructuring that may entail, among other things, a substantial reduction in the interest rate and/or a substantial write down of the principal of the loan. In addition, certain bank loans are highly customized and, thus, may not be purchased or sold as easily as publicly-traded securities. Any secondary trading market also may be limited, and there can be no assurance that an adequate degree of liquidity will be maintained. The transferability of certain bank loans may be restricted. Risks associated with bank loans include the fact that prepayments may generally occur at any time without premium or penalty. High-yield debt securities have greater credit and liquidity risk than investment grade obligations.

High-yield debt securities are generally unsecured and may be subordinated to certain other obligations of the issuer thereof. The lower rating of high-yield debt securities and below investment grade loans reflects a greater possibility that adverse changes in the financial condition of an issuer or in general economic conditions, or both, may impair the ability of the issuer thereof to make payments of principal or interest. Securities rated below investment grade are commonly referred to as “junk bonds.” Risks of high-yield debt securities may include (among others): (i) limited liquidity and secondary market support, (ii) substantial market place volatility resulting from changes in prevailing interest rates, (iii) the possibility that earnings of the high-yield debt security issuer may be insufficient to meet its debt service, and (iv) the declining creditworthiness and potential for insolvency of the issuer of such high-yield debt securities during periods of rising interest rates and/ or economic downturn. An economic downturn or an increase in interest rates could severely disrupt the market for high-yield debt securities and adversely affect the value of outstanding high-yield debt securities and the ability of the issuers thereof to repay principal and interest. Issuers of high-yield debt securities may be highly leveraged and may not have available to them more traditional methods of financing.

This material is distributed for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy, or investment product, or as investing advice of any kind. This 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. The content contained herein 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.

This material contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions 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. 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. 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.

©2024, 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.


FEATURED PERSPECTIVES

February 20, 2024

Corporate Credit Quarterly Insights - February 2024

Market and portfolio update from our Corporate Credit team

January 29, 2024

Learning from Turning Points in Monetary Policy

The Case for Moving Into Higher-Quality Fixed Income (and Out of Money Markets and Equities) While the Fed Is Paused… and Ahead of Coming Rate Cuts.

January 11, 2024

11 Macroeconomic Themes for 2024

11 trends that will shape credit markets in 2024.


VIDEOS AND PODCASTS

Are Fixed-Income Investors Being Compensated for the Risks They Are Taking? 

Are Fixed-Income Investors Being Compensated for the Risks They Are Taking?

Maria Giraldo, Investment Strategist for Guggenheim Investments, joins Asset TV’s Fixed Income Masterclass.

Macro Markets Podcast 

Macro Markets Podcast Episode 47: Investing as the Fed Prepares to Start Rate Cuts

Matt Bush and Evan Serdensky share their updated outlook following the latest FOMC meeting and the January jobs report.







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.

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 Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, and GS GAMMA Advisors, LLC.

© 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.