October 10, 2024

Guggenheim Fourth Quarter 2024 High-Yield and Bank Loan Outlook: Fed Rate Cuts Are Positive for Leveraged Credit (With a Few Caveats)

NEW YORK, NY – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Fourth Quarter 2024 High Yield and Bank Loan Outlook. Titled “Fed Rate Cuts Are Positive for Leveraged Credit (With a Few Caveats),” the report explores the outlook for high yield corporate bonds and leveraged loans as the Federal Reserve (Fed) cuts interest rates.

Among the highlights in the report:

• The effects of the Fed’s inaugural interest-rate cut and anticipated future cuts have begun to materialize, but the benefit to the credit markets will vary meaningfully by sector and issuer.
• While overall financial conditions have eased in response to rate cuts, the benefits to credit may be muted, particularly in the high yield corporate bond market, which is likely to absorb higher interest rates for several years as existing low-interest-rate debt gets refinanced.
• In the near term, the refinancing burden for high yield issuers is manageable, with just 4 percent of the total market maturing in 2025, and 9 percent due in 2026.
• Leveraged loan borrowers are poised to benefit more directly from the Fed’s easing cycle due to their loans’ floating-rate nature and the continued repricing of contractual spreads lower. 
• High yield corporate bonds and leveraged loans currently offer attractive yields of 7 percent and 9 percent, respectively. We slightly favor loans, given better implied returns available to those with the expertise to differentiate across credits. 
• As the Fed continues to ease rates, bank loan yields will decline while high yield corporate yields will likely remain largely unchanged, potentially making the value proposition more balanced.
• 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 both high yield bonds and leveraged loans offer value, investors should prioritize quality, focusing on higher rated issuers and maintaining senior positions in the capital structure. In the current environment, rigorous credit selection is crucial for navigating potential risks and capitalizing on opportunities.

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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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.