Readying for Recession: High Yield Credit vs. Bank Loans Today
Shape of high yield bond and bank loans markets as recessionary worries build is explored by Loomis Sayles’ Matt Eagan.
- 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.
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.
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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.