Guggenheim sees ‘great opportunities’ despite a potential recession. Here’s the playbook it recommends.


The chance of a U.S. recession occurring by the end of the year are “relatively high,” while inflation is likely to fall towards 3%, according to Guggenheim Partners Investment Management, which has over $190 billion in fixed income assets.

While recent economic data may point to a “rolling recession, rolling expansion environment, … the magnitude of financial tightening, and the ongoing quantitative tightening by the Fed are all pretty significant headwinds that make economic growth over a multi-year period more challenging,” said Steven Brown, chief investment officer at Guggenheim Total Return

and Macro Strategies. 

The Federal Reserve has raised its benchmark interest rate by a total of 5 percentage points since March last year. 

Read: This economist says he can’t rule out a Fed interest-rate cut by year-end. Here’s why.

Meanwhile, inflation is likely to fall to close to the Fed’s 2% target in 2024, but not this year, Brown said in a phone interview. Inflation and the so-called core inflation numbers, which exclude food and energy prices, are also likely to track closer to each other, noted Brown. 

Still, the current market environment presents great opportunities for fixed income investors, as Treasury yields are at elevated levels not seen in over a decade, Brown said in a phone interview. The yield on the 2-year Treasury

stands at close to 5%, while the 10-year Treasury

yield on Friday has climbed to slightly above 4% on Friday. 

“This is a great opportunity for us to get returns for our clients both from the baseline yield as well as kind of abnormally wide or or in some cases significantly wider spreads,” said Brown. 

Brown also said he is seeing most value in non-agency structured credits including asset backed securities and non-agency residential mortgage backed securities. 

“Credit spreads are wide relative to history, spreads are wide relative to corporate credit, and dollar prices are significantly below par. This means they screen well from both a current yield and total return perspective,” Brown said. 

Meanwhile, “from a fundamental credit standpoint we are positive as well. We find it prudent in this uncertain environment to invest in senior secured risk on pools of assets or streams of cashflows that we forecast as resilient through an economic cycle,” Brown said. 

Brown also said he expects the 10-year treasury yield to be mostly range bound between 3% and 4%. “We would likely view yields at or above 4% as an attractive entry point to add duration,” Brown said. 

Also read: Here’s how Jefferies is responding to a world where everyone can earn roughly 5% on cash


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