Why did trends diverge for corporate borrowers? (Part 9 of 9)
Secondary market activity: Leveraged loan funds continue to see outflows
Net outflows from leveraged loan (SNLN) mutual funds in the week ended June 27 came in at ~$424 million, compared to ~$369 million the previous week. Last week brings the total net inflows into leveraged loan mutual funds to ~$1.6 billion year-to-date.
This was the seventh straight week of net outflows for leveraged loan mutual funds (BKLN), bringing the total year-to-date net inflows to ~$1.6 billion. Leveraged loan mutual funds have seen net outflows in ten out of 13 weeks in the second quarter of 2014 (Source:Lipper). Let’s see what that will mean for returns.
Year-to-date returns on the S&P/LSTA U.S. Leveraged Loan 100 Index had come in at 2.38% up to June 27. For the week ending June 27, the index increased 0.10%, compared to a decline of 0.1% in the S&P 500 Index (SPY).
The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK) invest in high-yield corporate debt securities. These ETFs declined by 0.05% and 0.02%, respectively.
As you saw earlier in Part 4 of this series, yields on high-yield debt increased last week due to disappointing economic data releases. Bond prices and yields move in opposite directions, which affected returns on HYG and JNK last week.
Issuer and investor rationale
Leveraged loans are issued on a floating rate basis. Issuers are benefiting from the low yields due to accommodative monetary policy. But investors are shunning these funds due to the prospect of low and declining yields, as the Fed has shown that it will pursue an accommodative monetary policy for some time. This will continue even after the Fed completes its taper of monthly bond purchases.
Fed officials can give you insight
To learn more about the views of Fed officials about current and future U.S. monetary policy, you can check out the Market Realist series Overview: Will the Fed’s doves and hawks find common ground?
Browse this series on Market Realist:
- Part 1 - Why did trends diverge for corporate borrowers?
- Part 2 - Why did investors see a surge in high yield debt issuance?
- Part 3 - Analyzing secondary trends in high yield debt securities
- Investment & Company Information
- mutual funds