Guggenheim First Quarter 2019 High-Yield and Bank Loan Outlook: Too Much Leverage in the System to Handle an Economic Downturn

Guggenheim Investments cautions that an uptick in corporate defaults in 2019 will mark the beginning of a prolonged period of stress in the corporate bond market, heightening the importance of gradual portfolio de-risking now

NEW YORK, Jan. 18, 2019 (GLOBE NEWSWIRE) -- Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its First Quarter 2019 High-Yield and Bank Loan Outlook. Entitled “Up the Escalator, Down the Elevator,” the report reflects the outlook for leveraged finance within the context of monetary policy, the business cycle, and financial condition of the sector issuers.

Among the highlights in the 12-page report:

• Market volatility will force the Federal Reserve to pause rate hikes in the first half of 2019 as an ongoing decline in equity prices, widening credit spreads, and tighter financial conditions foreshadow higher defaults in the next 12 months, but we believe it will resume tightening monetary policy later in the year.
  
  
• We continue to believe that with real GDP growth running above potential, unemployment below full employment and falling, and core inflation near the 2 percent target, the 2019 data should be solid enough for the Fed to hike two times later in 2019.
  
  
• Spread widening in the fourth quarter implies an increase in the 12-month trailing issuer-weighted high-yield default rate to 3.2 percent this year, from 1.8 percent currently. A lack of credit availability compared to recent years presents upside risk to this projection.
  
  
• A Fed pause may support tighter credit spreads early in the year, but with investor confidence having been badly damaged, we believe 2019 will not be friendly to borrowers once the Fed resumes hiking interest rates.
  
  
• Recent market volatility reminds us that risky asset returns typically follow an “up the escalator, down the elevator” motion—performance is slow and steady on the way up, but swift and steep on the way down, which supports a gradual de-risking as we have been recommending for several quarters.

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 $208 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 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 total asset figure is as of 9.30.2018. The assets include leverage of $11.8bn for assets under management. 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 Real Estate, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited, 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 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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This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC 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. 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. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.

Media Contact
Gerard Carney
Guggenheim Partners
310.871.9208
Gerard.Carney@guggenheimpartners.com