Leveraged-Loan Funds Swell to Record $115 Billion, JPMorgan Says

Leveraged-loan assets under management have risen this year to a record $115 billion, with investors adding $1.5 billion this week to funds that buy the floating-rate debt, according to JPMorgan Chase & Co.

With more than $40 billion of inflows this year, assets under management in junk-loan funds have increased almost 60 percent since the beginning of the year to $115 billion, from $71 billion in 2012, the bank said today in a research note.

“A heightened attention on rate risk is leading to incredible growth in the retail base for leveraged loans,” New York-based JPMorgan analysts Nelson Jantzen and Peter Acciavatti wrote in the note. “Demand for floating rate product is displaying no signs of abating.”

Investors are seeking floating-rate debt on concern that Federal Reserve could scale back its unprecedented monetary accommodation designed to stimulate the economy, spurring a rise in interest rates, according to the report.

Federal Reserve Bank of Chicago President Charles Evans said this week that the U.S. central bank could begin tapering its bond-buying program in September.

Leveraged-loans have junk category ratings of less than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s. The debt pays interest based on the variable London interbank offered rate. Three-month Libor (US0003M) was set at 0.265 percent today.

To contact the reporter on this story: Christine Idzelis in New York at cidzelis@bloomberg.net

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

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