(Bloomberg) -- Funds that invest in leveraged loans are on track to suffer their biggest weekly outflows since March 2023’s regional banking crisis, according to JPMorgan Chase & Co.
Withdrawals from Aug. 1-5 were an estimated $1.44 billion, including a combined $682 million for actively managed funds and exchange-traded funds, strategist Nelson Jantzen wrote in a Monday report. That’s after outflows in the week ended July 31 were the largest this year at $54.4 million, figures from fund-data firm LSEG Lipper show.
As investors pull money from leveraged-loan funds, average secondary prices have been slumping. They fell the most since March 2023 on both Friday and Monday. The latter’s 0.56-cent decline put prices at a year-to-date low of 95.84 cents on the dollar, according to the Morningstar LSTA US Leveraged Loan Index.
The weaker-than-expected July US employment report released Friday has caused tumult across markets globally— raising concerns about a recession and fueling debate on how quickly the Federal Reserve may need to ease monetary policy. Leveraged loans, which are priced against a benchmark financing rate, tend to fall out of favor as interest rates decline.
“It’s about questioning how much floating-rate product you want to be invested in when the Fed starts cutting rates,” said Robert Schwartz, a portfolio manager at AllianceBernstein.
But the selloff could be creating a buying opportunity for the biggest purchasers of leveraged loans — managers of collateralized loan obligations. “Everyone is looking at what the large retail complexes own because they’re going to have to deal with redemption,” said Lauren Basmadjian, global head of liquid credit at Carlyle Group. “That’s where the market anticipates selling.”
Two leveraged-loan deals that launched last week were postponed on Monday, and a third occurred Tuesday morning involving wealth manager Focus Financial Partners Inc. But there has been a deal debut from Ohio power plant operator South Field LLC.
Overall, institutional managers don’t expect forced selling in the market.
“Investors are thinking about this selloff more from an opportunistic long perspective rather than waiting for stability to sell more,” said Eric Williams, head of capital structure and a senior portfolio manager on the global fixed income team at Northern Trust Asset Management. “It seems opportune to look for more high-quality companies that are for sale.”
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