Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, provided its Third Quarter 2020 High-Yield and Bank Loan Outlook. Titled “The Impact of the Fed’s Corporate Credit Facilities,” the report discusses the efficacy of Federal Reserve intervention in credit markets, and why its corporate credit facilities should prove a tailwind for high-yield corporate bonds and bank loans into the third quarter and beyond despite a deterioration in credit fundamentals.

Among the highlights in the 16-page report:

• With the Fed’s Secondary Market Corporate Credit Facility targeting a normalization of credit market functioning, we are monitoring metrics, including the level of credit spreads, credit curve shape, trading volume, and bid-ask spreads.
• There is still scope for improvement in the level of credit spreads. BBB-rated spreads remain 37 basis points wider than January levels. BB-rated corporate bond spreads are 124 basis points wider than January levels, and B-rated corporate bonds are 130 basis points wider.
• High-yield credit curves remain inverted. In the BB-rated sector, the difference between a nine- to 10-year maturity bond spread and a two- to three-year maturity bond spread is -36 basis points.
• Rating migration has been negative and default rates have risen, reminding us that the Fed’s programs cannot repair solvency issues.

"Our work continues to focus on opportunistically capturing value as the Fed’s programs support credit markets," the company said. "As such, we are somewhat bullish."