With withdrawals from retail players persisting through the summer months and beyond, assets of U.S. funds investing in leveraged loans fell by $ 950 million in September – the largest monthly drop since the withdrawal segment risky retail investors in March.

After posting two months of growth, this brings the total net asset value of loan funds under management to $ 88.95 billion – the lowest since April and just $ 1 billion from March’s drop to $ 87.89 billion. of dollars.

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The nearly $ 1 billion decline in the total net asset value of blue chip funds comes as the rally in leveraged loan prices in the secondary market slowed significantly, with September recording a 33 basis point increase , against a gain of 121 basis points. in August and a 176 basis point advance in July.

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Also driving the market value equation, the cash outflow from the funds that bring Lipper IMF every week amounted to $ 1.2 billion. September, however, saw a significant increase in demand for CLOs, with new issue volumes reaching $ 11.47 billion, according to LCD, helping to fill the void.

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Given the low interest rate environment and the degree of Fed support for high yield, investment grade bonds, floating rate loans have not been the asset class of choice for much. of 2020. However, with 10-year yields rising to 0.81% on October 7, leveraged loans returned to positive inflows during the week ending October 14, at $ 181 million. of dollars – its highest value in the dark since mid-January.

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With the performance of leveraged loans below that of fixed income securities since the onset of the coronavirus, a still weak net supply picture supporting valuations could make the asset class attractive again in terms of appreciation. prices, with only 42% of the market above 98, against 78% at the start of the year. Of course, the accounts are watching US Treasury rates closely, especially if 10-year yields rise above 1%, a level that could bring entries back more evenly, the comments suggest.

Big fiscal stimulus under a united Democratic government – an electoral scenario that markets are increasingly picking up on – could put upward pressure on Treasury yields, asset manager BlackRock said in an Oct. 26 report lowering the underweight to US Treasuries.

“The potential for budget spending – especially in the case of a radical Democratic election result – could spur higher returns and a steeper yield curve,” the report read.


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