Collateralized loan obligations
There were two collateralized loan obligation (or CLO) deals in the week ended October 24. Issuance volumes came in at $821 million. Year-to-date issuance and transaction figures now stand at $101.8 billion and 189 deals, respectively, according to S&P Capital IQ/LCD.
Secondary market flows from leveraged loan mutual funds
Net outflows from leveraged loan (BKLN) mutual funds in the week ending October 24 came in at $1.7 billion, compared to a net outflow of $964 million in the previous week. Last week brings the total net outflows from leveraged loan mutual funds to $9.7 billion year-to-date.
Impact of October’s FOMC on investor flows
As leveraged loans pay interest on a floating rate basis, the continued low rates environment in 2014 has compelled investors to pull funds out of the asset class. Last week marked the 15th consecutive weekly net outflow. However, outflows were higher than usual.
Markets may have been anticipating a dovish slant at the Fed’s Federal Open Market Committee (or FOMC), scheduled for October 28-29. A lower and slower path of increases in the Fed funds rate would adversely impact leveraged loans.
However, the stronger institutional demand for CLO deals has mitigated some of the impact of sustained outflows from leveraged loans in the past few months. Institutional investors have shown strong appetite for CLO deals, as they provide flexibility to accommodate risk-return preferences amongst investors.
ETF return comparisons
Stock and high yield debt (HYG) investors benefited due to the upbeat releases. The S&P/LSTA U.S. Leveraged Loan 100 Index, was up by 0.7% over the week ending October 24. The Invesco PowerShares Senior Loan Portfolio (BKLN), which invests primarily in leveraged loans, was up by 0.9% over the same period.
In comparison, stock market ETFs like the iShares Core S&P 500 ETF (IVV), the SPDR Dow Jones Industrial Average ETF (DIA), and the SPDR MSCI World Quality Mix ETF (QWLD) were up by 4.2%, 2.6%, and 2.0%, respectively, over the week.
For more bond market updates, visit Market Realist’s Fixed Income page.