/perspectives/sector-views/high-yield-and-bank-loan-outlook-october-2016

High-Yield and Bank Loan Outlook – October 2016

Despite the recent rise in prices and tightening of spreads, interest expense coverage ratios for non-commodity high-yield issuers are relatively low, and the domestic economy is resilient.

October 14, 2016

Report Highlights

The leveraged credit market turned in another impressive quarter, but valuations suggest caution going forward. Prices have risen for high-yield bonds and bank loans, and we are concerned about rising levels of leverage, ongoing troubles in the banking sector, and uncertainty surrounding upcoming political events—including the U.S. presidential election, the Italian constitutional referendum, and key European elections. Nevertheless, interest expense coverage ratios for non-commodity high-yield issuers are strong, and the domestic U.S. economy is relatively healthy. In this environment, we will likely be selling into strength and buying on weakness. As a lower beta credit play, we believe the bank loan market currently offers better value than high-yield bonds.

  • The Credit Suisse High-Yield Bond and Leveraged Loan indexes posted gains of 5.7 percent and 3.0 percent in the third quarter, bringing year-to-date returns to 15.5 percent and 7.5 percent, respectively. Year to date in 2016, high-yield bonds have outperformed the S&P 500, which has gained 7.8 percent on a total return basis.
  • Because markets are a discounting mechanism, the fundamental improvement in the high-yield market is already reflected in current valuations. High-yield bond prices are averaging 94.9 percent of par, the highest since July 2014, with BB-rated and B-rated bonds trading at 106 and 102 percent of par, respectively.
  • As the lower beta credit play, we believe the bank loan market currently offers better value than high-yield bonds. We are treading carefully, however, as a large portion of the market trades above par despite having limited call protection.
 

FEATURED PERSPECTIVES

October 19, 2020

Guggenheim’s 2020 Election Portfolios

Our portfolios are constructed based on the key aspects of each candidate’s policy agenda that we believe will move markets. We will publish daily updates in the run up to the presidential election on Nov. 3, 2020.

August 19, 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.

July 29, 2020

China Matters More Than Ever

Cooperation and understanding between China and United States is vital as global economic and environmental challenges mount.


VIDEO

Third Quarter Outlook 

Third Quarter 2020 Outlook

Brian Smedley, Head of Macroeconomic and Investment Research, and Portfolio Manager Steve Brown share their outlook for the third quarter 2020.

2020 Macro Themes 

Macro Themes for 2020

Brian Smedley, Head of Macroeconomic and Investment Research, discusses major trends likely to shape markets this year.







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 Corporate Funding, LLC, Guggenheim Partners Europe Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, 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.