If you were wondering whether the leveraged loan bubble had stopped bursting, the answer is an emphatic “no”.
On Thursday evening, we got the latest weekly flows data from Lipper and (surprise!) leveraged loan funds suffered a gargantuan $2.53 billion outflow in the week through Wednesday.
For the record, that is the largest outflow on, well, on record, and it marks the fourth consecutive weekly exodus from ETFs and mutual funds which hold the debt.
This is turning into something of a rout for one of the only assets that managed to perform for investors in 2018. The following chart shows the benchmark in the top pane and the YTD total return in the bottom pane plotted with IG and HY.
As you can see, the outperformance by leveraged loans is dwindling fast, although to be fair, it still looks good by comparison to the array of assets that have suffered grievous declines this year.
If you take a look at what’s transpired since risk assets took a decisive turn for the worst in October when “Tariff man“‘s “greatest” import taxes conspired with Jerome Powell’s “plain English” assessment of how far we are from neutral to freak everyone out, you can see that leveraged loans have continued to slide despite IG and HY having found their footing a bit.
One other thing we would note is that the Invesco Senior Loan ETF saw a pretty large volume spike just before the close on Tuesday and the flows data shows the product hemorrhaged nearly $100 million during that session. Generally speaking, this is not a pretty picture:
This is yet another one of those “we don’t have much in the way of special insight” moments, as the above just is what it is, so to speak.
The bottom line is that generalized concerns about credit have collided with i) a bubble ii) seasonality and iii) the prospect of a less aggressive Fed (which will dent demand for floating-rate products) and the result is what you see above.