Must know: The weekly high yield bonds and leveraged loans update (Part 7 of 8)
Last week, the leveraged loan market (BKLN) had an inflow of $411 million compared to $600 million inflow in the previous week.
The year-to-date inflow was $4.6 billion; $2.2 billion lower than the year-to-date inflows over the same period in 2013. Even though the weekly inflows were lower compared to the previous week, last week marked the 88th straight week of inflows. The four-week trailing average slipped to $425 million, from $532 million last week, and $636 million two weeks ago.
The Power Shares Exchange-Traded Fund Trust II (BKLN) ETF mainly tracks leveraged loans posted net inflows of $16.7 million last week. As opposed to the iBoxx $ High Yield Corporate Bond Fund (HYG), this ETF seeks to replicate the performance of the Markit iBoxxA USD Liquid High Yield Index. The one-month inflow for the ETF stood at $35.5 million.
The leveraged loan market remained buoyant despite a moderate decline in the U.S. ten-year Treasury rates as many of investors believed that the decline in the U.S. Treasury is minuscule to start panicking. In the long-term, interest rates are expected to rise with the onset of tapering (reduction in monthly bond purchases by the U.S. Federal Reserve), which in turn would benefit floating rate bond investors as they would receive coupon payments based on prevailing market rates. This is unlike fixed interest rate bondholders whose coupon payments will be unable to take advantage of any expected future increases in interest rates.
Browse this series on Market Realist:
- Part 1 - Last week’s market trends: The effect of macroeconomic indicators
- Part 2 - Must know: Why did the high yield bond market weaken?
- Part 3 - Setback: Why did high yield bond fund flows decline last week?