Borrowers are issuing fixed-rate high-yield bonds to take out floating-rate leveraged loan debt at the fastest pace since the first quarter of 2017.
Through March 14, completed bond-for-loan takeout offerings in 2019 have totaled $11.9 billion, according to LCD. With the inclusion of ADT’s pending offering, expected to launch this month, this figure edges to $12.4 billion.
The renewed emphasis on the fixed-rate high-yield asset class, at the expense of floating-rate leveraged loans, is clear via retail investor activity. So far in 2019 U.S. high-yield funds have seen a net inflow of $8.2 billion, while U.S. loan funds have seen a net withdrawal of roughly the same amount, according to Lipper weekly reporters.
Notably, retail investors have pulled money from loan funds for the past 17 weeks, totaling nearly $22 billion.
Before the recent retail retreat from the U.S. leveraged loan market, interest rates had been rising, benefiting the floating rate asset class. Market observers do not expect another rate hike in 2019, according to CME group. — Jakema Lewis
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