Here are the key takeaways from our latest High-Yield and Bank Loan Outlook report:
- The increase in leverage and decrease in interest coverage in 2020 were almost entirely driven by the decline in earnings. The economic recovery and associated improvement in consumer spending should help cure that.
- Although we are not avoiding any sector entirely, including transportation and airlines, there are many opportunities in the middle of the stack of fundamentals and valuations without extending risk significantly. Some sectors are consumer cyclical products, business services, metals and mining, financials, media, pharmaceuticals, and manufacturing, to name a few.
- History shows there is more room for credit spreads to compress against Treasurys, and that spreads can persist at low levels for several years, even well after the Fed has begun tightening monetary policy.
- Although there may be short-lived pullbacks in markets this year, we expect the current cycle has some time to run and would welcome those opportunities to buy at better prices.
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