Chart of the week

Leveraged credit prices fell in Q4 2018 amid significant outflows

This week’s chart shows just how quickly sentiment can shift and why active management may help uncover opportunities.

February 1, 2019 | 1 minute read
Leveraged credit fund flows and prices
  • Global equity and fixed income markets experienced significant volatility in Q4 2018 as a broad-based “risk-off” sentiment quickly escalated. In December, senior secured loan and high yield bond prices reached their lowest point in approximately 2.5 years driven by large investor outflows.1
  • Bank loan mutual funds recorded their largest ever weekly outflow in the last week of December and their first quarterly outflow in a year.2 Meanwhile, investors withdrew $6.8 billion from high yield bond mutual funds in December, capping the asset class’s largest ever annual outflow.2
  • The sell-off came at a time when corporate default rates remain near historic lows. High yield and senior secured loan defaults ended December at 1.8% and 1.6%, respectively.3
  • The sharp sell-off in the fourth quarter, part of which has been recovered in January, serves as a timely reminder of how quickly sentiment can shift. In these environments, technicals (supply/demand), rather than fundamentals, tend to drive prices. These periods may create opportunities for managers with the expertise and liquidity to take advantage of investments arising from the volatility.

  • Senior secured loans are represented by the Credit Suisse Leveraged Loan Index. High yield bonds are represented by the ICE BofAML U.S. High Yield Index.

  • JPM High-Yield and Leveraged Loan Morning Intelligence, December 21, 2018, based on fund flow data from Thomson Reuters Lipper.

  • Default rates are based on data from S&P Global Market Intelligence.

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