Outflows from Leveraged Loan Funds Reach a 2015 High
According to data from Lipper, leveraged loans funds saw outflows for the week ended August 26, making it the fifth week of outflows in a row.
The US leveraged loans market saw an allocation of $1.025 billion worth of senior loans in the week ended August 28.
Investor flows in high yield bond funds returned to negative territory last week, after having seen inflows in the previous week.
Difficult market conditions have held junk bond issuance back for two successive months—July and August.
Challenging market conditions have reduced the amount of high yield bond issuances in recent weeks.
All three US equity indices that we review in this weekly series rebounded in the week ended August 28, 2015, after a disastrous previous week.
According to Lipper, leveraged loan funds saw outflows for the week ended August 19, making it the fourth such successive week. The quantum of outflows was $754 million, the highest so far in 2015.
According to S&P Capital IQ/LCD, the US leveraged loans market saw an allocation of $6.7 billion in senior loans in the week ended August 21. This was 31.1% lower than the previous week.
Yields on high-yield bonds and spreads between high-yield bonds and Treasuries surged over the week ended August 21. High-yield bond yields ended the week at 7.38%, the highest since June 30.
ONEOK (OKE) is in the business of storing and transporting natural gas. It issued junk bonds worth $500 million in the week ended August 21. The Ba1/BB+ rated single-tranche issue carried a coupon of 7.5%.
High-yield bond issuance fell sharply in the week ended August 21, 2015. It was the lowest since the week ended July 2, 2015, due to difficult market conditions.
Commodities prices, especially for copper, fell in the week ended August 21. The broad equity market also became wary of slumping commodities prices and took a tumble.
What should fixed income investors do today? Generally, widening spreads provide a buying opportunity for investors, because spreads widen when yield of a security rises.
High-yield bond issuance has clearly fallen as 2015 has progressed. For most of the first five months of 2015, issues related to refinancing needs dominated the primary market for high-yield bonds.
Investors should note that high-yield bonds are risky securities to begin with. The add-on risk of widening spreads may not suit all types of investors.
Issuance volume of high-grade bonds has fallen as 2015 has progressed. One reason for the fall in issuance is the rise in yields, which makes issuances expensive for high-grade bond issuers.
If spreads widen further, high-grade bonds will become more attractive because yields and prices are inversely related. A rise in yields indicates falling prices.
Over an eight-year period, the term premium on a ten-year US security rose to 3.25% in October 2008. It saw a low of -0.37% in January 2015.
Yield spreads are the difference between the yields of two fixed income securities. In this article, we’ll look at yield spreads between Treasury securities.
Earlier this year, investors from other countries were buying long-term U.S. Treasuries, which resulted in the yield curve getting flatter.
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