U.S. leveraged loan prices have surged to their highest levels since 2007 as investors snap up assets that will offer compensation with central banks moving into a rate hike cycle.
Leveraged loans are often taken out by companies that have high levels of debt, usually with non-investment grade credit ratings, and are often used by private equity firms to fund their acquisitions of these companies.
Unlike bonds, they pay a floating interest rate, which rises as underlying interest rates rise, making them attractive to investors at a time when central banks embark upon rate hikes.
That has exacerbated the need to snap up assets that payout as rates rise, sending the price of the S&P/LSTA Leveraged Loan Index to its highest levels since July 2007 at 99.066 at Wednesday’s close, according to data from Refinitiv and S&P Global’s Leveraged Commentary and Data.
Investor inflows have also surged with loan funds saw the highest inflows since 2013 at $1.84 billion for the week ending on January 12, according to data from Refinitiv Lipper.
With inflation raging at 40-year highs, Federal Reserve officials have signaled they will start raising U.S. interest rates as early as March with investors expecting as many as four rate hikes this year.
