Treasury Rout Fuels Fire in Roaring U.S. Leveraged Loan Market

(Bloomberg) -- Investors already love U.S. leveraged loans too much — this week’s spike in Treasury yields only intensifies their ardor.

As investors piled into loans for protection against higher rates, loan funds have received more than $16 billion in cash so far this year, according to Lipper. On top of that, institutional money flooded into separately managed accounts and collateralized loan obligations, which have scooped up loans at a record pace.

"The moves in the 10-year — and the attention they’re getting — should serve to bolster sentiment within the leveraged loan space, as investors focus on the potential for rates to move higher," said Jon Poglitsch, head of credit at Highland Capital Management. The yield spike "brings the value proposition of floating-rate debt in this environment front and center," he said.

There probably won’t be enough new loans to buy, leaving borrowers the upper hand to get even better terms and reprice existing deals. That removes some of the juice for investors, but it probably won’t end their enduring love for loans.

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