Sector Report High-Yield and Bank Loan Outlook - July 2014

Certain areas of leveraged credit are overvalued, particularly CCC-rated bonds and bank loans, but often some of the best profits come in the final phase of a cycle. With valuations frothy, we believe now is the time to start moving up in credit quality. Our analysis finds value in BB-rated and B-rated bonds and we are most positive on BB-rated and B-rated bank loans, where discount margins still trade wide of ex-recession averages.

Report Highlights

  • CCC-rated corporate bonds and CCC-rated bank loans are the richest groups in leveraged credit and should be avoided. Spreads have some room to run before reaching historically low levels, but now is the time to move up in credit quality.
  • Our outlook remains positive on BB-rated and B-rated bank loans. Their discount margins still trade wide of ex-recession averages and should tighten once the U.S. Federal Reserve begins raising interest rates.
  • We continue to emphasize relative value, deep credit analysis, and proper risk management — particularly as we enter the final stretch of the bull market. The value of these tools is highlighted by manager performance during the previous recession, when the bottom 20 high-yield managers underperformed the Credit Suisse High Yield Index by 10 percent, while the top 20 outperformed the Index by 8 percent, on average.

 

Important Notices and Disclosures

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.
 

This article is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product or as an offer of solicitation with respect to the purchase or sale of any investment. This article should not be considered research nor is the article intended to provide a sufficient basis on which to make an investment decision. The article contains opinions of the author but not necessarily those of Guggenheim Partners, LLC its subsidiaries or its affiliates. Although the information presented herein has been obtained from and is based upon sources Guggenheim Partners, LLC believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and nonproprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy. This article may be provided to certain investors by FINRA licensed broker-dealers affiliated with Guggenheim Partners. Such broker-dealers may have positions in financial instruments mentioned in the article, may have acquired such positions at prices no longer available, and may make recommendations different from or adverse to the interests of the recipient. The value of any financial instruments or markets mentioned in the article can fall as well as rise. Securities mentioned are for illustrative purposes only and are neither a recommendation nor an endorsement. Individuals and institutions outside of the United States are subject to securities and tax regulations within their applicable jurisdictions and should consult with their advisors as appropriate.
 

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Aviation, Guggenheim Real Estate, LLC, Transparent Value Advisors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management. 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. ©2014, Guggenheim Partners, LLC. Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim Partners, LLC and Guggenheim Investments. For information, call 800.345.7999 or 800.820.0888.
 

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