Investors poured $231 million into U.S. loan funds this week, the biggest weekly inflow in almost ten months, on expectations that the Federal Reserve may raise interest rates as soon as next year, according to Bank of America Corp.
Floating-rate bank debt has attracted the most interest since the week of June 1, 2011, Bank of America said yesterday in a research report.
“The market now believes that the Fed will start hiking up interest rates sooner then they believed last month,” Hans Mikkelsen, a New York-based credit strategist at Bank of America, said today in a telephone interview. That means investors “would become more excited about floating-rate interest.”
While the Fed has pledged to keep its benchmark rate unchanged until the end of 2014, the market now expects the central bank to start raising it by October 2013, said Mikkelsen.
U.S. monetary policy may be at a “turning point” and the Fed’s first interest-rate increase since the global financial crisis could come as soon as late 2013, Federal Reserve Bank of St. Louis president James Bullard said in a speech earlier today.
Investors are turning to the funds as loan prices rallied 2.6 cents since the beginning of the year while Europe moved closer to approving the 130 billion-euro ($172 billion) bailout for Greece. The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index closed on March 21 at 93.7 cents on the dollar, the highest since Aug. 3.
It’s the first time since November that weekly fund flows represented more than 0.5 percent of total net assets, according to the Bank of America report.