Guggenheim First Quarter 2021 High-Yield and Bank Loan Outlook: A Ripe Environment for Strong Credit Performance

NEW YORK, Feb. 25, 2021 (GLOBE NEWSWIRE) — Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its First Quarter 2021 High-Yield and Bank Loan Outlook . Titled “A Ripe Environment for Strong Credit Performance,” the report explains why we expect a decline in default volumes, an improvement in rating migration, and a recovery in corporate earnings. These fundamental improvements, supported by another round of fiscal relief and the rollout of a successful vaccine distribution, will facilitate a reduction in leverage ratios and spreads remaining near current levels.

Among the highlights in the 16-page report:

  • A continued U.S. recovery, significant aid from Congress, and accommodative monetary policy form the basis of our constructive credit views. Corporate fundamentals should recover this year as consumer spending begins to normalize with the deployment of COVID-19 vaccines.
  • Although leveraged credit issuer leverage ratios spiked in 2020 and interest coverage fell, other data were not as negative. As of the third quarter of 2020, year-over-year revenues declined by only 2.8 percent on a median basis and net debt growth was only 1.8 percent.
  • Importantly, leveraged credit issuers saw a 60 percent increase in cash and cash equivalents, assets that they will surely put to work in 2021 as maintaining excess liquidity becomes less urgent for companies and undesirable by investors.
  • Leverage ratios and interest coverage are likely to improve in 2021. The increase in leverage and decrease in interest coverage in 2020 were almost entirely driven by the decline in earnings. The economic recovery and associated improvement in consumer spending should help cure that.
  • Although we are not avoiding any sector entirely, including transportation and airlines, there are many opportunities in the middle of the stack of fundamentals and valuations without extending risk significantly. Some sectors are consumer cyclical products, business services, metals and mining, financials, media, pharmaceuticals, and manufacturing, to name a few.
  • History shows there is more room for credit spreads to compress against Treasurys, with spreads still between the 20th and 30th percentile of historical observations dating back to 1998. Furthermore, history has shown that after recessions, there is an extended period when spreads can persist at low levels for several years, even well after the Fed has begun tightening monetary policy.
  • Given the expectation for consumer spending to normalize and business investment to increase, we think history is set to repeat itself. Although there may be short-lived pullbacks in markets this year, we expect the current cycle has some time to run and would welcome those opportunities to buy at better prices.

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About Guggenheim Investments

Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $246 billion 1 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 300+ 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 as of 12.31.2020 and include leverage of $13.7bn. 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.

Investing involves risk, including the possible loss of principal. The potential impacts of the COVID-19 outbreak are increasingly uncertain, difficult to assess and impossible to predict, and may result in significant losses. Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their value 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.

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Media Contact
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Guggenheim Partners
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