Report: Guggenheim Q2 Outlook Shows Elevated Refinancings
Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, provided its Q2/17 high-yield and bank loan outlook. Outlined below are highlights from the 12-page report:
- The primary issuance market is witnessing a strong resurgence in activity, but refinancing makes up the lion’s share. Combining high-yield corporate bond and institutional leveraged loan issuance, refinancing volume represented 52% and 66% of total new issue activity in 2016 and Q1/17, respectively, compared to the 10-year average of 43%.
- Borrowers shaved roughly 90 basis points from contractual spreads through refinancing transactions in the first quarter, effectively lowering investors’ spread income. This is something investors should factor into yield expectations going forward.
- Even with adjusted return expectations, bank loans look more attractive than high-yield corporate bonds due to their higher position in the capital structure, their floating coupons, and their lower spread durations.
- With spreads at relatively tight levels, the sector appears vulnerable to spread-widening.Guggenheim Partners expects investors to harvest gains unless they see more concrete legislative progress on fiscal policy in Washington.
Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with $209 billion in assets across fixed income, equity and alternative strategies.