Late-Cycle Drama Is Unfolding - Title Image

Late-Cycle Drama Is Unfolding

Risk assets will likely enjoy another rally while the Fed stays on hold, but the pause will only allow excesses to become more pronounced.

March 07, 2019


Fixed Income Outlook video

Adam Bloch and Matt Bush share insights from the First Quarter Fixed-Income Outlook


Fixed-Income Outlook

First Quarter 2019

Here are the key takeaways from our latest Fixed-Income Outlook report:

  • In this environment where we believe credit spreads are not enough to compensate for risks, it is prudent to stay up in quality and maintain adequate liquidity to pick up undervalued credits during more opportune times.
  • We believe that the Fed will pause rate increases in the first half of 2019, with the risk that this pause could last longer. Additionally, the possibility of a rate cut cannot be ruled out.
  • The Fed pause is supportive of a rally across risk assets in the near term, but it will also allow excesses to continue to build in the system.
  • Many of the concerning trends previously discussed by our sector teams, including the potential for high downgrade volume in the investment-grade market and defaults in certain credit sectors, remain at the forefront of our long-term thinking.
  • Our baseline forecast now envisions one more hike later in the year, with balance sheet runoff ending before year-end. Further rate hikes may be required in 2020 should inflation expectations begin to rise meaningfully.
  • Our recession forecasting tools continue to point to a downturn starting by mid-2020.
 
 

Sector-Specific Outlooks In This Report


Important Notices and Disclosures

Investments in fixed-income instruments are subject to the possibility that interest rates could rise, causing their values to decline. 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 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.

This material is distributed or presented for informational or educational purposes only and should not be considered a recommendation of any particular security, strategy or investment product, or as investing advice of any kind. This material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content contained herein is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.

This material contains opinions of the author or speaker, but not necessarily those of Guggenheim Partners 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. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. Past performance is not indicative of future results.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management. This material is intended to inform you of services available through Guggenheim Investments’ affiliate businesses.

© 2019 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.


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VIDEO

Fixed-Income Outlook 

First Quarter 2019 Fixed-Income Outlook

Portfolio Manager Adam Bloch and Macroeconomic and Investment Research Group Director Matt Bush share insights from the first quarter 2019 Fixed-Income Outlook.

Solving the Core Fixed-Income Conundrum 

Solving the Core Fixed-Income Conundrum

Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.







© 2019 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.