This timely report explores the outlook for leveraged credit after the worst quarterly performance on record.
NEW YORK, May 24, 2022 (GLOBE NEWSWIRE) — Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Second Quarter 2022 High-Yield and Bank Loan Outlook. Titled “Despite the Gray Mood, Skies Are Only Partly Cloudy,” the report explores the outlook for credit amid rising inflation, monetary tightening by major central banks, and a war in Europe.
Among the highlights in the 13-page report:
While the leveraged credit market delivered one of the worst first quarter performances on record, there are reasons to conclude that conditions are not as dire as they seemingly appear.
While caution is warranted, this credit cycle is not yet over and that prudent risk-taking in high-yield and bank loan markets may offer rewards for investors who can look through the gloom.
The uncertainty triggered by the intensity of rising inflation and the Russia-Ukraine war is a headwind for credit markets, yet underlying fundamentals in many cases remain solid.
First quarter real gross domestic product growth came in at -1.4 percent quarter over quarter annualized. However, this negative figure is misleading, as the slowdown was due to trade (more imports than exports) and a slower pace of inventory investment. Underlying domestic demand remains robust, and the job market is historically tight.
Rising prices for most inputs, including labor and energy, as well as supply chain constraints and shipping/transportation delays remain key challenges for many U.S. companies. Despite these challenges, our view is that we are far from stresses that would trigger a default cycle.
The current environment offers an opportunity to start removing some exposure to issuers that are more exposed to non-U.S. revenues and that have little pricing power to tackle rising costs.
For corporate issuers with minimal exposure to Europe, who have the capacity to absorb rising labor or energy costs, and whose balance sheets have manageable leverage, the current period may be supportive of better-than-expected performance.
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About Guggenheim Investments
Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $252 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 250+ 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 3.31.2022 and include leverage of $20bn. Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners 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.
Investing involves risk, including the possible loss of principal. 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 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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