An environment conducive to strong credit performance


NEW YORK, February 25, 2021 (GLOBE NEWSWIRE) – Guggenheim Investments, the global asset management and investment advisory division of Guggenheim Partners, today presented its outlook for bank and high yield lending for the first quarter of 2021 Entitled “An Environment for Strong Credit Performance,” the report explains why we expect lower default volumes, improved ratings migration and a pickup in corporate earnings. These fundamental improvements, supported by another round of tax breaks and the rollout of a successful vaccine distribution, will facilitate a reduction in debt ratios and spreads that remain close to current levels.

Among the highlights of the 16-page report:

  • A continued US recovery, significant congressional assistance, and accommodative monetary policy underpin our constructive views on credit. Business fundamentals are expected to recover this year as consumer spending begins to normalize with the rollout of COVID-19 vaccines.
  • Although the debt ratios of leveraged credit issuers increased in 2020 and interest coverage fell, other data was not as negative. In the third quarter of 2020, year-over-year income fell only 2.8% on a median basis, and net debt growth was only 1.8%.
  • Importantly, leveraged credit issuers have seen a 60% increase in cash and cash equivalents, assets that they will surely implement in 2021, as maintaining excess liquidity becomes less urgent for them. businesses and junk for investors.
  • Debt ratios and interest coverage are expected to improve in 2021. The increase in indebtedness and the decrease in interest coverage in 2020 were almost entirely due to lower earnings. The economic recovery and the associated improvement in consumer spending should help remedy this.
  • While we are not avoiding any sector entirely, including transportation and airlines, there are plenty of opportunities in the middle of the stack of fundamentals and valuations without increasing risk significantly. Some sectors are Consumer Cyclicals, Business Services, Metals and Mining, Financial Services, Media, Pharmaceuticals and Manufacturing, to name a few.
  • History shows that there is more room for credit spreads against treasury bills, with spreads still between the 20th and 30th percentile of historical observations going back to 1998. Furthermore, history has shown that ‘After recessions, there is an extended period where spreads can persist at low levels for several years, even long after the Fed has started to tighten monetary policy.
  • Given the forecast for consumer spending to normalize and business investment to increase, we believe history will repeat itself. While there may be short-lived pullbacks in the markets this year, we expect the current cycle to have some time to run and we would welcome these opportunities to buy at better prices.

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About Guggenheim Investments

Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $ 246 billion1 in total assets for 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, foundations and endowments, consultants, wealth managers and high net worth investors. Our more than 300 investment professionals conduct rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and under-tracked. This approach to investment management has enabled us to offer innovative strategies that offer diversification opportunities and attractive long-term results.

1. Assets under management of Guggenheim Investments as at 12.31.2020 and include a leverage effect of $ 13.7 billion. Guggenheim Investments represents the following affiliated investment management firms 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, GS GAMMA Advisors, LLC and Guggenheim Partners India Management.

Investing involves risks, including the possible loss of capital. The potential impacts of the COVID-19 outbreak are increasingly uncertain, difficult to assess and impossible to predict, and can result in significant losses. Investments in fixed income instruments are subject to the possibility that interest rates will rise, causing their value to fall. High yield and unrated debt securities have a higher risk of default than investment grade bonds and may be less liquid, which can increase volatility.

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This material is distributed or presented for informational or educational purposes only and should not be construed as a recommendation of any particular security, strategy or investment product, nor as investment advice of any nature whatsoever. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with making investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained in this document is not intended to be and should not be construed as legal or tax advice and / or legal advice. Always consult a financial, tax and / or legal professional regarding your specific situation.

This material contains the views of the author, but not necessarily those of Guggenheim Partners, LLC or its affiliates. The opinions contained in this document are subject to change without notice. Forward-looking statements, estimates and certain information contained herein are based on proprietary and non-proprietary research and other sources. The information contained in this document was obtained from sources believed to be reliable, but is not guaranteed as to its accuracy. Past performance does not represent future results. There is no representation or warranty as to the current accuracy of decisions based on this information, nor any liability for it. No part of this material may be reproduced or mentioned in any form without the express written permission of Guggenheim Partners, LLC.

Media contact
Gerard Carney
Guggenheim Partners
[email protected]

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