Readying for Recession: High Yield Credit vs. Bank Loans Today

By Matthew J. Eagan, CFA®

Credit Complexities

Shape of high yield bond and bank loans markets as recessionary worries build is explored by Loomis Sayles’ Matt Eagan.

Credit markets are revealing investor concerns for potential recessionary conditions. Against that backdrop, Co-Head of Loomis Sayles’ Multisector Full Discretion team Matt Eagan compares the current status of high yield bonds vs. syndicated bank loans. As each credit cycle is different, these fixed income asset classes may not always behave as we have come to expect. Highlights of the video:
  • Broad-based fundamentals such as interest coverage and leverage point to high yield assets appearing well-prepared for a possible recession.
  • Given current spreads and losses that we might expect through this cycle, investors receive a decent risk premium to remain invested in high yield. We haven’t seen excesses build up in the high yield market, so where are they?.....
  • Private equity is booming, with private equity companies “buying up” corporate America via leveraged buyout activity. This buying activity is being funded by the syndicated bank loan market, particularly in the lower quality end of this market.
  • As floating rate instruments, bank loans can benefit investors particularly amid rising interest rates. Issuers, however, are challenged with a rising interest rate expense burden.
  • Every cycle is different with excesses building up in different parts of the market. As this particular cycle progresses, the Loomis Sayles Multisector Full Discretion team expects to see weakness in the syndicated bank loan market as opposed to the traditional high yield marketplace.
For more insight on fixed income investing, explore Fixed Income Designed for Markets in Motion.
All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

Fixed income securities may carry one or more of the following risks: credit, interest rate (as interest rates rise bond prices usually fall), inflation and liquidity.

Commodity-related investments, including derivatives, may be affected by a number of factors including commodity prices, world events, import controls, and economic conditions and therefore may involve substantial risk of loss.

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This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of August 2022 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

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