Image alt tag

Error!

X

There was a problem contacting the server. Please try after sometime.

Sorry, we are unable to process your request.

Error!

X

We're sorry, but the Insights and Intelligence Tool is temporarily unavailable

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Error!

X

We're sorry, but the Literature Center checkout function is temporarily unavailable.

If this problem persists, or if you need immediate assistance, please contact Customer Service at 1-888-522-2388.

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.

A verification Email Has Been Sent

Close

An email verification email has been sent to .
Follow the instructions to complete the email validation process.

I have not received my verification email

Check your SPAM mailbox and make sure that twelcome@lordabbett.com is allowed to send you mail.

I'm still having trouble

If you're still having trouble verifying your email address. feel free to contact us.

1-888-522-2388
clientservices@lordabbett.com


OK

We're sorry. We found no record of the email address you provided.

Close

Register For a LordAbbett.com Account
Using Your Email Address.

  • Registered Financial Advisors gain access to:
  • Our data mining tool, Insight & Intelligence
  • Best in-class practice management content
  • Educational events, videos and podcasts.
  • The Lord Abbett Review - Subscribe now!

Registered but Having Problems?

If you believe you are registered and are having problems verifying your email address, feel free to contact us.

1-888-522-2388 clientservices@lordabbett.com

Terms & Condition

X

These Terms of Use ("Terms of Use") are made between the undersigned user ("you") and Lord, Abbett & Co. ("we" or "us"). They become effective on the date that you electronically execute these Terms of Use ("Effective Date").

A. You are a successful financial consultant that markets securities, including the Lord Abbett Family of Funds;

B. We have developed the Lord Abbett Intelligence System (the "Intelligence System"), a state of the art information resource that we make available to a limited community of broker/dealers through the Internet at a secure Web site (the "LAIS Site"); and

C. We wish to provide access to the Intelligence System to you as an information tool responsive to the demands of your successful business pursuant to these Terms of Use. Accordingly, you and we, intending to be legally bound, hereby agree as follows:]

1. Overview. · Scope. These Terms of Use (which we may amend from time to time) govern your use of the Intelligence System. · Revisions; Changes. We may amend these Terms of Use at any time by posting amended Terms of Use ("Amended Terms of Use") on the LAIS Site. Any Amended Terms of Use will become effective immediately upon posting. Your use of the Intelligence System after any Amended Terms of Use become effective will be deemed to constitute your acceptance of those Amended Terms of Use.We may modify or discontinue the Intelligence System at any time, temporarily or permanently, with or without notice to you. Purpose of the Intelligence System. The Intelligence System is intended to be an information resource that you may use to contribute to your business research. The Intelligence System is for broker/dealer use only; it is not to be used with the public in oral, written or electronic form. The information on the Intelligence System and LAIS Site is for your information only and is neither the tax, legal or investment advice of Lord Abbett or its third-party sources nor their recommendation to purchase or sell any security.

2. Your Privileges. · Personal Use. Your use of the Intelligence System is a nontransferable privilege granted by us to you and that we may deny, suspend or revoke at any time, with or without cause or notice. · Access to and Use of the Intelligence System. The User ID and password (together, an "Access ID") issued by us to you (as subsequently changed by you from time to time) is for your exclusive access to and use of the Intelligence System. You will: (a) be responsible for the security and use of your Access ID, (b) not disclose your Access ID to anyone and (c) not permit anyone to use your Access ID. Any access or use of the Intelligence System through the use of your Access ID will be deemed to be your actions, for which you will be responsible. · Required Technology. You must provide, at your own cost and expense, the equipment and services necessary to access and use the Intelligence System. At any time, we may change the supporting technology and services necessary to use the Intelligence System. · Availability. We make no guarantee that you will be able to access the Intelligence System at any given time or that your access will be uninterrupted, error-free or free from unauthorized security breaches.

3. Rights in Data. Our use of information collected from you will be in accordance with our Privacy Policy posted on the LAIS Site. Our compliance with our Privacy Policy will survive any termination of these Terms of Use or of your use of the Intelligence System.

4. Your Conduct in the Use of the Intelligence System. You may access, search, view and store a personal copy of the information contained on the LAIS Site for your use as a broker/dealer. Any other use by you of the Intelligence System and the information contained on the LAIS Site these Terms of Use is strictly prohibited. Without limiting the preceding sentence, you will not: · Engage in or permit any reproduction, copying, translation, modification, adaptation, creation of derivative works from, distribution, transmission, transfer, republication, compilation or decompilation, reverse engineering, display, removal or deletion of the Intelligence System, any portion thereof, or any data, content or information provided by us or any of our third-party sources in any form, media or technology now existing or hereafter developed, that is not specifically authorized under these Terms of Use.

· Remove, obscure or alter any notice, disclaimer or other disclosure affixed to or contained within the Intelligence System, including any copyright notice, trademark and other proprietary rights notices and any legal notices regarding the data, content or information provided through the Intelligence System.

· Create a hyperlink to, frame or use framing techniques to enclose any information found anywhere on the LAIS Site without our express prior written consent.

· Impersonate any person, or falsely state or otherwise misrepresent his or her affiliation with any person in connection with any use of the Intelligence System.

· Breach or attempt to breach the security of the Intelligence System or any network, servers, data, or computers or other hardware relating to or used in connection with the Intelligence System; nor (b) use or distribute through the Intelligence System software or other tools or devices designed to interfere with or compromise the privacy, security or use of the Intelligence System by others or the operations or assets of any person.

· Violate any applicable law, including, without limitation, any state federal securities laws. 5. Your Representations and Warranties. You hereby represent and warrant to us, for our benefit, as of the time of these Terms of Use and for so long as you continue to use the Intelligence System, that (a) you are, and will continue to be, in compliance with these Terms of Use and any applicable laws and (b) you are authorized to provide to us the information we collect, as described in our Privacy Policy.

6. Disclaimer of Warranties.

· General Disclaimers.

THE INTELLIGENCE SYSTEM, THE LAIS SITE AND ALL DATA, INFORMATION AND CONTENT ON THE LAIS SITE ARE PROVIDED "AS IS" AND “AS AVAILABLE” AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND. WITHOUT LIMITING THE PRECEDING SENTENCE, LORD ABBETT, ITS AFFILIATES, AGENTS, THIRD-PARTY SUPPLIERS AND LICENSORS, AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, DIRECTORS, OFFICERS AND SHAREHOLDERS (COLLECTIVELY, THE “LORD ABBETT GROUP”) EXPRESSLY DISCLAIM ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, AND NONINFRINGEMENT. YOU EXPRESSLY AGREE THAT YOUR USE OF THE LAIS SITE, THE INTELLIGENCE SYSTEM, AND THE DATA, INFORMATION AND CONTENT PRESENTED THERE ARE AT YOUR SOLE RISK AND THAT THE LORD ABBETT GROUP WILL NOT BE RESPONSIBLE FOR ANY (A) ERRORS OR INACCURACIES IN THE DATA, CONTENT AND INFORMATION ON THE LAIS SITE AND THE INTELLIGENCE SYSTEM OR (B) ANY TERMINATION, SUSPENSION, INTERRUPTION OF SERVICES, OR DELAYS IN THE OPERATION OF THE LAIS SITE OR THE INTELLIGENCE SYSTEM.

· Disclaimer Regarding Investment Research.

THE INTELLIGENCE SYSTEM INCORPORATES DATA, CONTENT AND INFORMATION FROM VARIOUS SOURCES THAT WE BELIEVE TO BE ACCURATE AND RELIABLE. HOWEVER, THE LORD ABBETT GROUP MAKES NO CLAIMS, REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY, TIMELINESS, COMPLETENESS OR TRUTHFULNESS OF SUCH DATA, CONTENT AND INFORMATION. YOU EXPRESSLY AGREE THAT YOU ARE RESPONSIBLE FOR INDEPENDENTLY VERIFYING YOUR INVESTMENT RESEARCH PRIOR TO FORMING YOUR INVESTMENT DECISIONS OR RENDERING INVESTMENT ADVICE. THE LORD ABBETT GROUP WILL NOT BE LIABLE FOR ANY INVESTMENT DECISION MADE BY YOU OR ANY OTHER PERSON BASED UPON THE DATA, CONTENT AND INFORMATION PROVIDED THROUGH THE INTELLIGENCE SYSTEM OR ON THE LAIS SITE.

· Survival.

THIS SECTION 6 SHALL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM..

7. Limitations on Liability.

NONE OF THE MEMBERS OF THE LORD ABBETT GROUP WILL BE LIABLE TO YOU OR ANY OTHER PERSON FOR ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES (INCLUDING LOSS OF PROFITS, LOSS OF USE, TRANSACTION LOSSES, OPPORTUNITY COSTS, LOSS OF DATA, OR INTERRUPTION OF BUSINESS) RESULTING FROM, ARISING OUT OF OR IN ANY WAY RELATING TO THE INTELLIGENCE SYSTEM, THE LAIS SITE OR YOUR USE THEREOF, EVEN IF THE LORD ABBETT GROUP HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS SECTION 7 WILL SURVIVE ANY TERMINATION OF THESE TERMS OF USE OR YOUR USE OF THE INTELLIGENCE SYSTEM.

8. Miscellaneous Provisions.

· Governing Law. This Agreement will governed by and construed in accordance with the laws of the State of New York, without giving effect to applicable conflicts of law principles.

THE UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT OR ANY VERSION THEREOF, ADOPTED BY ANY STATE, IN ANY FORM ("UCITA") WILL NOT APPLY TO THESE TERMS OF USE. TO THE EXTENT THAT UCITA IS APPLICABLE, THE PARTIES HEREBY AGREE TO OPT OUT OF THE APPLICABILITY OF UCITA PURSUANT TO THE OPT-OUT PROVISION(S) CONTAINED THEREIN.

The Intelligence System is not intended to be used by consumers, nor are the consumer protection laws of any jurisdiction intended to apply to the Intelligence System. You agree to initiate and maintain any action, suit or proceeding relating to these Terms of Use or arising out of the use of the Intelligence System exclusively in the courts, state and federal, located in or having jurisdiction over New York County, New York.

YOU HEREBY CONSENT TO THE PERSONAL JURISDICTION AND VENUE OF THE COURTS, STATE AND FEDERAL, LOCATED IN OR HAVING JURISDICTION OVER NEW YORK COUNTY, NEW YORK. YOU AGREE THAT YOU WILL NOT OBJECT TO A PROCEEDING BROUGHT IN YOUR LOCAL JURISDICTION TO ENFORCE AN ORDER OR JUDGMENT OBTAINED IN NEW YORK.

· Relationship of Parties. The parties to these Terms of Use are independent contractors and nothing in these Terms of Use will be construed as creating an employment relationship, joint venture, partnership, agency or fiduciary relationship between the parties.

· Notice. All notices provided under these Terms of Use will be in writing and will be deemed effective: (a) when delivered personally, (b) when received by electronic delivery, (c) one business day after deposit with a commercial overnight carrier specifying next day delivery, with written verification of receipt, or (d) three business days after having been sent by registered or certified mail, return receipt requested. We will only accept notices from you in English and by conventional mail addressed to: General Counsel Lord, Abbett & Co. 90 Hudson Street Jersey City, N.J. 07302-3973 We may give you notice by conventional mail or electronic mail addressed to the last mail or electronic mail address transmitted by you to us.

· Third-Party Beneficiaries. The members of the Lord Abbett Group are third-party beneficiaries of the rights and benefits provided to us under these Terms of Use. You understand and agree that any right or benefit available to us or any member of the Lord Abbett Group hereunder will also be deemed to accrue to the benefit of, and may be exercised directly by, any member of the Lord Abbett Group to the extent applicable.

· Survival. This Section 8 will survive any termination of these Terms of Use or your use of the Intelligence System. The undersigned hereby signs these Terms of Use. By electronically signing and clicking "Accept" below, these Terms of Use will be legally binding on me. To sign these Terms of Use, confirm your full name and enter your User ID and Password (as your electronic signature) in the fields indicated below and click the “I Accept” button.

Reset Your Password

Financial Professionals*

Your password must be a minimum of characters.

Confirmation Message

Your LordAbbett.com password was successully updated. This page will be refreshed after 3 seconds.

OK

 

Fixed-Income Insights

Some investors may be concerned that increased lending and higher default rates may be signaling a pullback in credit. A closer look at relevant data suggests otherwise.

 

In Brief

  • There is some concern among U.S. high-yield investors that the current credit cycle may be drawing to a close. 
  • Those concerns have arisen from data showing that debt issuance appears to have increased, while overall high-yield defaults are rising. Such conditions typically coincide with the start of a recession.
  • But a closer look at the data suggests that a recession is not imminent. For one thing, there is little evidence of strains in bank lending. Narrowing credit spreads suggest lenders are comfortable with the credit metrics of lower-quality companies.
  • And while overall high-yield default rates have risen, that is due mainly to weakness in the energy and metals/mining sectors.
  • In addition, the other conditions that typically presage more aggressive tightening by the U.S. Federal Reserve are not apparent.
  • The key takeaway—The available evidence suggests that we remain in the expansionary phase of the credit cycle.

 

As the length of the current credit cycle approaches the nine-year average of the past few cycles, there are signs that change is in the wind for the U.S. high-yield market. Debt issuance appears to have increased, while defaults are rising. If history is our guide and the credit cycle is indeed shifting, it likely will coincide with an economic recession in the United States, historically the worst time to own lower-quality credits.  It is not surprising, then, that investors want a better understanding of where we are in the credit cycle.

The credit cycle reflects the expansion and contraction of credit as we move through three broad economic phases: recovery, expansion, and downturn. While clearly we have recovered from the last contraction in credit and a pullback in the economy, we are not yet at a credit downturn. Credit downturns involve reduced bank lending, credit-spread widening, and increased defaults, generally during a period of economic recession. While defaults have increased, bank lending continues to expand, credit spreads continue to narrow, and typical conditions for a U.S. recession—the sequence of robust growth, excessive borrowing, and aggressive monetary tightening—do not exist. 

The primary areas of concern today—substantial debt issuance and defaults—are less a function of aggressive risk seeking corporate behavior and more related to refinancing at historically low rates and problems specific to the energy and metals/mining sectors.

Available Credit
There is little sign of a credit crunch in terms of bank lending. According to a report from the U.S. Federal Reserve (Fed), U.S. commercial and industrial loans grew 8.4% in the first half of 2016, after growing 10.3% in 2015; commercial real estate loans increased 10.5%, versus 9.9%; residential real estate loans increased 2.7%, versus 1.1%; and consumer loans grew 7.6%, versus 5.7%. Lending growth and availability of credit continues to expand, despite the fact that financial institutions are more heavily regulated than in the past several credit cycles.

In addition to continued bank lending, narrowing credit spreads suggest lenders are comfortable with the credit metrics of lower-quality companies. As charts 1–2 illustrate, spreads of high-yield debt and, separately, ‘CCC’ rated bonds indicate a willingness to lend and availability of credit. 

 

Chart 1. Spreads on Non-commodity ‘CCC’ Rated Bonds Have Remained Within Their Multiyear Range…
Spreads on ‘CCC’ rated debt of issuers in commodity and non-commodity sectors, January 1, 2010–August 31, 2016 

Source: Deutsche Bank.
Past performance is no guarantee of future results. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment.

 

Chart 2. … While Spreads on the Broader High-Yield Sector Also Have Held Near Historical Averages
Spreads on the JP Morgan High Yield Index, January 1, 1990–August 31, 2016

Source: JP Morgan.
Note:  High-yield bonds represented by the JP Morgan High Yield Index.
Past performance is no guarantee of future results. Indexes are unmanaged, do not reflect the deduction of fees or expenses, and are not available for direct investment. It is important to note that the high-yield market may not perform in a similar manner under similar conditions in the future. The historical data shown in the chart above are for illustrative purposes only and do not represent any specific portfolio managed by Lord Abbett or any particular investment.

 

Recession Unlikely
In addition to evidence that credit is readily available, signs of a U.S. recession that typically align with the end of a credit cycle are difficult to find. As economist Rudi Dornbusch once said, “No postwar recovery has died…of old age—the Federal Reserve has murdered every one of them.” The glacial pace of current Fed policy, however, can hardly be characterized as “murderous.” In addition, the other preconditions that generally force aggressive, “murderous” tightening are not apparent. Aggressive rate hikes typically are prompted by robust economic growth (something we’re still waiting on) that leads to stepped-up borrowing for expansion in order to take advantage of the opportunities created by strong growth. If these conditions exist, they should produce the excessive inflation that aggressive Fed rate hikes are designed to correct through economic slowdown. Today’s economy fails to resemble such conditions. 

If recession seems unlikely and credit is available, the increase in defaults and debt issuance still demand analysis and explanation. After several years at historically low levels, defaults on high-yield bonds increased, to 3.52%, in August 2016, above the 25-year average of 3.27%, according to JP Morgan. It is important to note that most of those defaults are related to problems in the energy sector and a few in the related area of metals/mining. In fact, excluding the energy and metals/mining sectors, the default rate was only 0.53%.

The problems in energy are driven by the large increases in oil supply—from U.S. producers as well as Saudi Arabia—that pushed prices dramatically lower. The fundamental weakness in energy seems sector-specific, not a symptom of a bigger issue that affects broad economic health. In addition, lower-priced energy does not damage the economic fortunes of most other companies; in fact, it likely represents a cost-reduction benefit. If lower-priced oil were a function of reduced demand because of reduced economic growth, non-energy companies would be in weaker positions as well, and broader default concerns would be justified; but it is supply not demand that is behind the price decline. Metals and mining are similarly affected by additional supply created in anticipation of increasing demand, largely from China.

Defaults, then, seem driven by supply issues specific to a few sectors, not the consequence of a broader economic event provoked by aggressive rate hikes and poised to undermine broad corporate health.

In terms of the level of borrowing, much of the debt increase since the 2008–09 recession may be appropriate given the historically low level of rates. Most of the increase in debt issuance has been for refinancing and not for speculative activity such as leveraged mergers and acquisitions. From 2009 through 2015, just over 58% of new high-yield issues were for refinancing, similar to almost 55% so far in 2016, according to J.P. Morgan. This compares to a little more than 36% in 2006 and 2007, prior to the recession, when borrowing for more speculative activity such as leveraged buyouts (LBOs) was more prevalent. The J.P. Morgan data show that only 20% of new-issue proceeds between 2009 through 2015 and 17.4% in 2016 (through August 31) were used for acquisitions or LBOs, compared with an average of almost 48% in both 2006 and 2007. Higher debt issuance since 2008 reflects a prudent use of historically low interest rates, not blind leverage, to increase the sector’s risk profile. 

Summing Up
The availability of bank credit, and the willingness of lenders to fund lower-quality credits without prohibitively high rates, suggests that we remain in the expansionary phase of the U.S. credit cycle. The absence of preconditions typical to recession further supports the thesis that a credit downturn is not unfolding. The nature of the increase in defaults seems a rational outcome of specific conditions in the energy and metals/mining sectors. The high level of borrowing appears appropriate, given historically low rates and the level of refinancing to take advantage of an opportunity to reduce corporate borrowing costs. 

Continued "lower for longer" monetary policy, combined with some fiscal stimulus in the form of infrastructure spending, could prolong the economic and credit cycles, which would keep defaults at bay and allow investors additional time to capture attractive income in a variety of bond credits. 

 

RELATED TOPICS

ABOUT THE AUTHOR

RELATED FUND
The Lord Abbett High Yield Fund has offered a track record of strong performance versus peers in up and down markets. Learn more.

Lord Abbett's Blog

videoOur blog, The Investment Conversation, features timely commentary and analysis from Lord Abbett experts. Join the conversation.

Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field