(Bloomberg) -- Investors piled into U.S. leveraged loan funds in a dash to seek protection from increasingly anticipated interest rate hikes to combat heated inflation.
Loan funds attracted $2.29 billion of cash the week ended Feb. 9, according to data from Refinitiv's Lipper, narrowly topping the previous record of $2.25 billion set a few weeks ago and marking the fifth-straight week of billion dollar-plus inflows.
Buyers have been flocking to leveraged loans because their interest payments are tied to a floating-rate benchmark and can serve as a hedge against rising rates. Consumer prices have spiked in recent weeks -- reaching a four-decade high -- and have prompted a hawkish shift at the U.S. Federal Reserve.
More outsized inflows to loan funds are likely to continue, especially after Federal Reserve's James Bullard said Thursday he supports raising rates by a full percentage point by the start of July. Loan funds received weeks of inflows during 2013 and 2017 when the Fed was engaging in a tightening program.
“I'm expecting what we saw in 2013 or even 2017 in terms of retail flows over the quarter. So I could be wrong, I could be estimating to the downside in terms of the amount of flows,” said Jeff Bakalar, group head of leveraged credit at Voya Investment Management.
Despite the growing demand from buyers, the leveraged loan market has been weakening recently with contagion from the selloff in junk bonds and volatility in equities. The average price in the S&P/LSTA leveraged loan index has fallen to the lowest level this year.
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