Guggenheim Second Quarter 2024 High-Yield and Bank Loan Outlook: Investor’s Guide to Default and Recovery Dynamics
May 02 2024 - 2:35PM
Guggenheim Investments, the global asset management and investment
advisory business of Guggenheim Partners, today provided its Second
Quarter 2024 High Yield and Bank Loan Outlook. Titled “Investor’s
Guide to Default and Recovery Dynamics,” the report discusses the
paradox of spreads remaining tight while defaults
persist.
Among the highlights in the report:
- Leveraged credit has
continued to deliver positive performance, reflecting the
improvement in the economic outlook, strength in credit
fundamentals, and the benefit of high yields in a more stable rate
environment.
- Capital markets have
become much more active as companies take advantage of tighter
spreads, though the increase in activity is largely driven by
refinancing rather than new capital supply.
- Rating migration
improved in leveraged credit, turning positive on a six-month
trailing basis for high yield bonds, and less negative for
leveraged loans.
- In general, credit
conditions have improved, and some borrowers have been able to
reduce interest costs through repricing activity. But there remains
a subset of issuers that have been sidelined and may be relying on
the Fed to deliver some form of easing.
- Despite the improved
economic outlook, the persistence of defaults at a significant rate
suggests continued risks, but it hasn’t led to wider risk premiums
for other companies.
- A possible
explanation is that defaults are more anticipated in this cycle
than in the past.
- Since rating
agencies have been quicker to identify high default risk, markets
have been able to adjust to these risks more proactively through
pricing.
- We discuss the three
main contributing factors to current trends in recovery rates and
anticipate some improvement by the end of 2024.
- Despite an overall
positive economic trajectory, the persistence of defaults in 2024
underscores the importance of strategically navigating the current
environment via active management and credit selection.
- The risk-reward for
high yield bonds before the Fed starts easing continues to look
favorable.
For more information, please visit
http://www.guggenheiminvestments.com.
About Guggenheim Investments
Guggenheim Investments is the global asset management and
investment advisory division of Guggenheim Partners, with more than
$234 billion1 in total assets across fixed income, equity, and
alternative strategies. We focus on the return and risk needs of
insurance companies, corporate and public pension funds, sovereign
wealth funds, endowments and foundations, consultants, wealth
managers, and high-net-worth investors. Our 235+ investment
professionals perform rigorous research to understand market trends
and identify undervalued opportunities in areas that are often
complex and underfollowed. This approach to investment management
has enabled us to deliver innovative strategies providing
diversification opportunities and attractive long-term results.
1. Guggenheim Investments Assets Under Management are as of
3.31.2024 and include leverage of $14.5bn. 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 Japan Limited, and GS GAMMA Advisors,
LLC.
Investing involves risk, including the possible loss of
principal. In general, the value of a fixed-income
security falls when interest rates rise and rises when interest
rates fall. Longer term bonds are more sensitive to interest rate
changes and subject to greater volatility than those with shorter
maturities. During periods of declining rates, the interest rates
on floating rate securities generally reset downward and their
value is unlikely to rise to the same extent as comparable fixed
rate securities.. 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 mortgage-backed securities
and 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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recommendation of any particular security, strategy, or investment
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Media Contact Gerard
CarneyGuggenheim Partners
310.871.9208Gerard.Carney@guggenheimpartners.com