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Loan Funds Add Deposits as High Yield Outflows Soar, BofA Says

Investors added $1.8 billion this week into funds that purchase leveraged loans in the U.S., according to Bank of America Corp.

The inflows brings deposits this year to about $47 billion, according to a report published yesterday by the Charlotte, North Carolina-based bank. U.S. speculative-grade bond funds reported the biggest outflows since the last week of June, with withdrawls of $2.2 billion, according to the report.

“The loan market will likely experience another significant repricing wave,” Barclays Plc credit strategists led by Bradley Rogoff, wrote in a research note today, highlighting the effect of a slowdown in supply even as demand strengthens for the asset class.

Funds that invest in senior-ranking floating-rate debt have lost 0.08 percent this month, Standard & Poor’s/LSTA index data show. Prices on the largest, first-lien loans have tumbled 0.56 cent to 97.68 cents, with gains on only two days this month, index data show.

Leveraged loans are a form of high-risk debt that carry ratings of less than Baa3 by Moody’s Investors Service and below BBB- at S&P. Investors have made deposits into loan mutual funds every single week this year, Bank of America data show.

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