U.S. Loan Funds Take in $749 Million, Most Since February 2011

U.S. loan funds took in $749 million this week, the highest weekly inflow since February 2011, according to Bank of America Corp. (BAC)

There have been $1.7 billion of deposits this year, or 2.3 percent of assets under management, the Charlotte, North Carolina-based bank said in a report yesterday.

Demand for leveraged loans, which have floating interest rates, remains high as investors look to hedge against future rising interest rates, Fitch Ratings wrote in a report yesterday. There have been 31 consecutive weekly inflows to the junk-grade debt that carries ratings of less than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s, according to Bank of America and Fitch.

“As loan spreads continue to grind lower, we expect borrowers will take advantage of the favorable tone,” analysts led by Darin Schmalz, director of leveraged finance at Fitch, wrote in the report.

Through the first two weeks of the year, $15 billion of new loan sales have been marketed and about $35 billion are expected to come to market, according to Fitch.

The average loan price rose 0.05 cent yesterday to 97.58, according to the S&P/LSTA U.S. Leveraged Loan 100 Index, the highest level since October 2007.

Inflows to high-yield bond funds have lagged behind loan mutual funds, taking in $1.1 billion so far this year, including $524 million this week, according to Bank of America.

To contact the reporter on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.