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Money Talk: Credit Market Analysis and Predictions

by AOG Wealth Management

In the world of investments, there are two particular asset classes that are important to understand: high-yield bonds and senior bank loans.

High-yield bonds are bonds with lower credit ratings than the likes of treasury and corporate bonds; they are so named because the higher risk for default means higher yields. Meanwhile, senior bank loans are financial commitments issued by financial institutions that take priority with regard to a borrower’s assets. Should the borrower go bankrupt, the assets used to acquire the senior loan will be the first to be repaid before all other obligations.

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Both attract investors thanks to their yield-generating qualities. AOG Wealth Management has taken a look at their market performance and here’s what we think is in store for these two asset classes.

Consistent Performance

Both started the year at largely attractive valuations. Partially influenced by rumors of Federal Reserve System (Fed) interest rate increases later on in the year, senior loans and high-yield bonds showed a stronger performance relative to traditional interest rate-sensitive fixed-income securities (investment grade corporate bonds and U.S. Treasuries, for example).

Interestingly, credit market returns waned ever so slightly compared to the first quarter. Experts believe a number of factors may have been responsible for this such as market volatility caused by Greece’s possible withdrawal from the Eurozone and weak commodity prices−specifically in the oil, coal, iron ore, and natural gas markets.

But does this mean you should pull out from the credit market? Some wealth management firms in DC don’t believe so. In fact, the second quarter moderation in these assets may be pointing to greener grass ahead.

Positive Outlook

Overall, the dollar remains strong and the country may be approaching potential interest rate increases in the near future, despite low yields in the rest of the world. Thanks to a slowly but steadily recovering economy, improving profitability, and conservative balance sheets, we believe senior loans and high-yield bonds to be well-positioned within the fixed-income market for the rest of the year.

Even returns look like they’ll pick up soon enough. After all, high-yield bonds currently remain attractive with yields at 6.51%. This calls for active rather than passive decision-making on the part of credit market players.

Additionally, if the Fed does get around to increasing rates later on in the year, it’s likely that the demand for senior loans among retail investors will pick up too. This secures this asset class’ position within the capital structure, making investing in it much more attractive and rewarding.

Economic predictions are just that. We try to anticipate what will happen. However, our focus is on making sure our clients are doing what they should to meet their financial goals. We recommend talking to one of our financial experts for asset and wealth management in Washington, DC to make sure your financial plan is matched to your goals and investments.

AOG Wealth Management specializes in financial planning solutions. We can help take care of your funds, trusts, bonds, stocks, investments, and other financial resources. Give us a call (866) 993-0203 to get started.

Category: Blog