Leveraged-Loan Fund Weekly Inflows Break Record Again, BofA Says

U.S. loan funds recorded their biggest weekly inflow, surpassing records set in the last two weeks as concern about rising interest rates draws buyers to the floating-rate debt, according to Bank of America Corp.

Investors added $1.5 billion into funds that purchase loans made to the neediest companies, the Charlotte, North Carolina- based bank said in a report yesterday, exceeding $1.3 billion of deposits made last week. The debt has gained for almost nine straight months, bringing the total tally of assets added in the period to about $14 billion.

“Loan inflows had started to pick up a lot toward the end of last year and it has to do with people worried about rising interest rates,” Chris Hays, a credit strategist at Bank of America, said in a telephone interview. “In such a scenario this is a natural place to go to. They also offer higher yield than most other fixed-income asset classes that investors can choose from.”

Loans, which are ranked higher up in the capital structure in case of a bankruptcy, are also better protected from rising interest rates since they are generally pegged to floating-rate benchmarks. The value of a fixed-rate security diminishes with an increase in rates.

The average yield of 6.03 percent on loans has dropped by more than 80 basis points since June, JPMorgan Chase & Co. data show. The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index, which tracks the average bid price on the 100 largest dollar- denominated first-lien leveraged loans, has climbed in the last two days to 97.26 cents yesterday, rising for the first time this month.

Leveraged loans are a form of high-risk debt that carries ratings of less than Baa3 by Moody’s Investors Service and below BBB- by S&P.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

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

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