/perspectives/sector-views/high-yield-and-bank-loan-outlook-november-2021

Are High-Yield Markets Misjudging Evergrande Risk?

High-yield investors should be weighing the risks of contagion more carefully.

November 24, 2021


High-Yield and Bank Loan Outlook

Fourth Quarter 2021

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

  • While the Asia high-yield sector reflects concerns over Evergrande and other overextended Chinese property companies showing distress, other credit markets—which usually exhibit positive correlation—have not demonstrated indications of worry.
  • This unusual situation represents the market’s faith that China will successfully manage the unwinding of Evergrande’s debt.
  • The U.S. high-yield market is no longer the domestic island many participants perceive it to be. This interconnectedness means that issuers in the U.S. high-yield index are susceptible to a potential China growth slowdown through second or third-order effects.
  • Abundant central bank-driven liquidity may also be causing U.S. high-yield investors to become complacent about risk, but central banks are moving to withdraw some accommodation.
  • Very strong corporate fundamentals and the improving economy lead us to remain constructive on the U.S. high-yield market, but we are mindful of the risks as we move along stages of the cycle.
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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 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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