Pace of Money Flowing Into High-Yield Loan Funds Drops by Half

Investors contributed $590 million over the past week to funds that buy high-yield corporate loans, half of the average seen most of this year, according to JPMorgan Chase & Co.

“To see the pace taper was always inevitable, as the asset class has been bringing in money at an unsustainable pace,” Nelson Jantzen and Peter Acciavatti, analysts at JPMorgan wrote in a research note today. Investors had been adding an average $1.2 billion to loan funds each week from February through mid-September, driving inflows this year to $55.3 billion, triple the record $17.9 billion of deposits in 2010.

Strong investor demand helped companies raise $541 billion of loans from non-bank lenders this year, according to the research note. Weekly loan-funds inflows slowed this month to $474 million in the period ended Oct. 16, from $556 million the week before.

“Both are the lightest inflows for the asset class since the first week of January,” the JPMorgan analysts wrote.

Junk loan prices averaged 97.75 cents on the dollar yesterday, down from a high this year of 98.88 cents in May, according to the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index.

The high-yield, high-risk debt has returned 3.7 percent this year, compared with a gain of 9.6 percent in the same period last year, data from the index show. Junk bonds have returned 5.9 percent this year, according to the Bank of America Merrill Lynch US High Yield index.

Leveraged loans and high-yield bonds are rated less than Baa3 by Moody’s Investors Service and below BBB- by S&P.

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