January 24, 2024

Guggenheim First Quarter 2024 High-Yield and Bank Loan Outlook: Higher-Quality Leveraged Credit Should Benefit from Fed Easing Cycle

NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its First Quarter 2024 High-Yield and Bank Loan Outlook. Titled “Higher-Quality Leveraged Credit Should Benefit from Fed Easing Cycle,” the report discusses the ongoing divergence between large and small companies as they adjust to the current rate environment.

Among the highlights in the report:

• 2023 saw remarkable returns in leveraged credit markets, with high-yield bonds and bank loans re-turning 13.5 percent and 13 percent, respectively.
• Credit spreads tightened significantly, indicating a robust year for these markets.
• Our prediction of a more challenging credit environment in 2023 largely materialized, with increased defaults and negative credit rating migrations.
• Earnings growth decelerated, and interest coverage ratios declined under the pressure of rising interest rates and inflation.
• While 2024 will bring its own set of challenges, we think the leveraged credit market is poised to deliver another year of positive returns with the benefit of declining interest rates.
• The anticipated Fed easing in 2024 could significantly boost borrowers’ ability to cover interest expenses, especially in the loan market.
• We expect a growing divide between large and small companies, with larger firms less sensitive to interest rate changes and better positioned to benefit from market conditions.
• We expect the 2024 leveraged credit default rate to be only marginally higher than 2023 (between 4–5 percent). Of course, this could vary greatly across individual ratings.
• Our analysis suggests that bank loan and corporate bond markets are well positioned to navigate this transition, but the ripple effects on smaller companies warrant close attention.
• The primary factor supporting the credit opportunity is the current allure of all-in credit yields. Over the last 15 years, corporate bond and bank loan yields have only reached these high levels during severely adverse market environments.
• With interest rates likely falling from here and larger firms better positioned to benefit from market conditions, we think 2024 should prove to be a good time to be a credit investor.

About Guggenheim Investments

Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $231 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.

Media Contact

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

¹Guggenheim Investments assets under management are as of 12.31.2023 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 Partners 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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