U.S. Leveraged Loan Funds Face Outflows, Fed Highlights Risks

(Bloomberg) -- Investors pulled cash from funds that invest in leveraged loans, while high-yield debt draws scrutiny from the Federal Reserve for losses it could inflict on investors in a downturn.

Mutual and exchange-traded funds saw outflows of $1.32 billion in the week ended Nov. 28, the third-biggest exodus this year, according to data from Lipper. Their junk bond counterparts also saw a withdrawal of $1.2 billion, the data show.

Loans have come under fire this month as the central bank, the Federal Open Market Committee and Fed Chairman Jerome Powell separately flagged concerns about standards and the escalated borrowing levels in the market for riskier debt. Senator Elizabeth Warren has also weighed in, likening conditions to that of the sub-prime mortgage market before the financial crisis. On top of that, volatility that’s roiled the equity market has bled into the assets, pushing prices for the debt to its lowest level since November 2016.

There were $992 million of net outflows from loan mutual funds, and $328 million from ETFs, the Lipper data show. Year-to-date inflows are still a net positive of $12.8 billion.

To contact the reporter on this story: Sally Bakewell in New York at sbakewell1@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Dan Wilchins

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