Guggenheim Second Quarter 2025 High Yield and Bank Loan Outlook: Credit Crossroads: Finding Value in an Era of Uncertainty

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22-05-2025

Relative value opportunities in volatile spread environment
NEW YORK, May 22, 2025 (GLOBE NEWSWIRE) -- Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today released its second quarter High Yield and Bank Loan Outlook. 'Credit Crossroads: Finding Value in an Era of Uncertainty,' examines the outlook for high yield corporate bonds and leveraged loans amid an uncertain economic environment and dimming growth outlook.
Key takeaways:
Despite recent progress on trade negotiations, tariffs and related uncertainty have weakened the U.S. economic outlook, widening the range of potential outcomes for credit.
While progress on trade negotiations has lowered the probability of deeper economic downside risks, we think agreements will ultimately still result in higher effective tariff rates than at the start of the year.
The leveraged credit market delivered positive returns, despite historically high volatility.
Spreads for the strongest credits retraced quickly and are now tighter than the start of the year, while spreads for the weakest credits remain wider, as investors isolated the likely impact of tariffs across issuers and industries.
Fundamentals vary widely by capital structure and issuer type.
Industries that have outperformed are perceived as more resilient to tariff impacts due to less impact from trade issues or with defensive characteristics.
In tariff-exposed sectors, spreads for the weakest credits are 20–30 percent wider than where they started the year, suggesting risks have not fully receded.
We currently favor high yield corporates with stronger credit profiles and less exposure to tariff impacts and are maintaining cash to capitalize on relative value opportunities as spreads evolve.
Substantial downside risk remains should trade negotiations disappoint, or if a deeper shock becomes evident when the full impact of tariffs materializes.
We continue to actively monitor our portfolios, focusing on vulnerability to cost inflation, supply chain disruptions, and sourcing dependencies, while emphasizing issuers with pricing flexibility, negotiating power, and diversified sourcing strategies.
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 and has more than $349 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 220+ 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.
1. Guggenheim Investments total assets are as of 3.31.2025 and includes $246 bn in GI Assets Under Management (AUM), plus $102.3 bn in non-advisory GI Assets Under Supervision (AUS) for a total of more than $349 bn. AUM includes leverage of $15.2 bn. 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 Private Investments, LLC, Guggenheim Wealth Solutions, 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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