July 29, 2024

Guggenheim Third Quarter 2024 High-Yield and Bank Loan Outlook: Lessons from the Distress Ratio: Stay Constructive on Higher Quality High Yield and Bank Loans

NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Third Quarter 2024 High Yield and Bank Loan Outlook. Titled “Lessons from the Distress Ratio: Stay Constructive on Higher Quality High Yield and Bank Loans,” the report describes the state of the distressed debt market and explains how it informs our constructive view of leveraged credit.

Among the highlights in the report:

• High yield credit spreads and bank loan discount margins remain near multi-year tight levels, but there is considerable bifurcation in these markets, with an aggregate of nearly $200 billion in bonds and loans trading at distressed levels.
• While this figure might seem elevated, it represents less than 10 percent of the total market, which is well within historical norms outside of recessionary periods.
• We remain constructive on higher quality high yield and bank loans but avoid these distressed credits.
• The current distress ratio of 7 percent in the ICE BofA High Yield Index and 11.5 percent in the Credit Suisse Leveraged Loan Index are below their historical averages, indicating the market's expectation of better than average outcomes based on the current economic outlook.
• We define distressed debt as high yield bonds trading at spreads of 1,000 or more basis points and loans priced below 90 percent of par.
• The communications industry has the highest volume of distressed debt outstanding, representing 37 percent of total distressed debt.
• For high-yield bonds, the distress ratio has been a good indicator of likely defaults within the next nine–12 months. The relationship for loans is weaker.
• While distress ratios often overstate actual defaults, they remain a useful indicator of market stress.
• Investors should use these ratios as a guide, coupled with thorough credit analysis, to identify opportunities and manage risks effectively.

About Guggenheim Investments

Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $235 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 235+ 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 6.30.2024 and include leverage of $15.1bn. 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, 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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