Guggenheim’s Scott Minerd Says Leveraged Loan Market Likely to Get Worse This Year

(Bloomberg) -- Full coverage at bloomberg.com/davos, on Twitter @business and via our special WhatsApp alerts.

The leveraged loan market is likely to get worse this year but the pain won’t be as extreme as 2008, Guggenheim Partners Chief Investment Officer Scott Minerd said.

“All of the new incremental supply of loans went to CLOs,” Minerd said in an interview on Bloomberg TV from the World Economic Forum. “Those people, in many cases, have sold the risk away. So all they are looking for is to get the assets.”

The loan market last month “was tough,” he said. “You wanted to adjust the risk based on the volatility. Unless you were trading really liquid on-the-run stuff you just couldn’t get good prices. The bank loan market would gap on very little supply.”

Leveraged loans had the largest monthly loss in seven years in December, dropping 2.5 percent as funds suffered record-breaking outflows. Buyers swiftly jumped in at the start of 2019, lured by relatively cheap valuations and pushing the market back up by 2.6 percent so far this year.

Loans were one of the few parts of credit to end 2018 with a positive return, gaining 0.44 percent according to the S&P/LSTA Total Return Index. The benchmark loan index had its first decline since Jan. 15 yesterday and fund outflows -- though they’ve moderated -- extended a losing streak to nine weeks.

Among Minerd’s additional comments:

  • Wall Street is likely to make further cost cuts but the reductions will be “surgical.”
  • The ETF market in making volatility more pronounced because many products are trading exotic fixed income securities.

©2019 Bloomberg L.P.