Guggenheim Q3 2017 High-Yield and Bank Loan Outlook: Bank Loans to Gain from Further FOMC Rate Increases

NEW YORK, July 25, 2017 -- Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided its Third Quarter 2017 High-Yield and Bank Loan Outlook.

Among the highlights in the 10-page report: 

• In June the Fed delivered its fourth rate hike since the financial crisis, raising the fed funds target range to 1.00–1.25 percent. The tone of the statement, as well as the press conference that followed, was not affected by recent weakness in inflation. This suggests the Fed views recent weakness as transient.
  
  
• The increase in short-term interest rates will drive bank loan coupons higher over the next two years. We expect loan coupons will eventually approximate high-yield corporate bond coupons, particularly with Libor rates generally exceeding Libor floors.
   
• Based on the net effect of rising Libor rates and spread tightening we expect loan coupons to converge with those of high-yield corporate bonds at around 6 percent. History shows that the convergence in coupon rates has occurred in each of the past three tightening cycles.
   
• Average bond and loan prices—currently at 98 percent of par for high-yield corporate bonds and 97 percent of par for bank loans—limit the potential to generate additional return from price appreciation.
  
  
• As bank loan coupons converge with those of high-yield bonds, we believe loans will be viewed as increasingly attractive to investors.
   
• At the same time, we continue to expect a pullback in risk assets, with low volatility and tight spreads making credit markets vulnerable to a bout of risk aversion.

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 $237 billion¹ in 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 275+ 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 and attractive long-term results.

¹Guggenheim Investments total asset figure is as of 6.30.2017. The assets include leverage of $11.3bn for assets under management and $0.4bn for assets for which we provide administrative services. Guggenheim Investments represents the following affiliated investment management businesses: 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.

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Guggenheim Partners 
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