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Loan market recap: Loans see record inflows after Bernanke’s talk (Part 1)

Senior Credit Analyst

Bernanke’s comments

After the two-day Humphrey Hawkins testimony to lawmakers, Bernanke’s comments caused record Treasury increases and record inflows in fixed income.

Record inflows

Over the past three weeks, leveraged loan inflows saw a decline, yet Bernanke’s statements were able to turn the situation around. A total of $1.7 billion flowed into mutual funds focused on leveraged loans (BKLN), which is almost $1 billion on top of the volume the previous week. This was the highest level ever recorded in a single week for leveraged loans, which have seen consecutive inflows for the past 57 weeks. Year-to-date inflows have accumulated $30 billion—three times as much as all of 2012.

(Read more: High yield bonds, the pain continues and will only get worse)

Record month, record uncertainty

Loan funds assets under management grew 5.7% during June, reaching $129 billion on June 30. The asset class has consistently grown over the past 13 months.

Over the coming months, though, leveraged loans (BKLN) may see downward pressure as high yield bonds start selling off in anticipation of quantitative easing tapering. Read why loans may fall victim to falls in high yield bonds despite their apparent structural advantage from their floating rates.

Additionally, as the economy improves, so will the equities markets. This will attract investors away from the leveraged loan market, so the upside isn’t guaranteed.

Loan issuance picked up as well, pulled up by high yield bonds

(Read more: Why MLPs provide excellent risk-reward for investors)

This analysis continues in Part 2.

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