Fourth Quarter 2022 Fixed-Income Sector Views

Fixed-Income Sector Views

Fourth Quarter 2022

While the path to get us here has been painful, investable yields have the potential to meet the return objectives of pension plans, insurance companies, or other investors that may have been sitting on the sidelines—or taking undue risk within fixed income in a reach for yield. As always, we have to be mindful with credit selection and maintain a healthy amount of defensive skepticism in our allocations, particularly with the Federal Reserve (Fed) still hiking and a recession looming (if it isn’t already here), but our risk appetite is relatively strong right now. Our conviction is strengthened by the historically wide spreads and low dollar prices available in the market. The message from our sector teams is that it is now possible for investors to generate the income they require without taking excessive credit or duration risk.

Sector-Specific Outlooks In This Report

Rates: Duration Opportunities as Rates Rise

Investment-Grade Corporate Bonds: Focus on Long Duration at Attractive Valuations

High-Yield Corporate Bonds: Priced for a Net Downgrade and Default Cycle

Bank Loans: The Loan Dilemma of Higher Interest Rates

Municipal Bonds: Differing Values in Taxable vs Tax Exempt Munis

ABS-CLOs: Relative Outperformance Amid Volatility

Non-Agency RMBS: Select Opportunities in RMBS Despite Cooling Housing Market

CMBS: Balancing Negatives and Positives

Agency MBS: Historically Wide Spreads Signal Long Term Value

Commercial Real Estate: Calling an End to the Great Work-From-Home Experiment

Important Notices and Disclosures

One basis point is equal to 0.01 percent.

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. Investors in asset-backed securities, including collateralized loan obligations (“CLOs”), generally receive payments that are part interest and part return of principal. These payments may vary based on the rate loans are repaid. Some asset-backed securities may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity and valuation risk. CLOs bear similar risks to investing in loans directly, such as credit, interest rate, counterparty, prepayment, liquidity, and valuation risks. Loans are often below investment grade, may be unrated, and typically offer a fixed or floating interest rate.

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This material contains opinions of the author or speaker, but not necessarily those of Guggenheim Partners 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. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.

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