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Up until the end of September, credit investors in particular and Wall Street in general had nothing but good things to say about the leveraged loan market and demand for new issuance seemed relentless, despite growing warnings from various third parties and websites such as this one. And then, loan pricing nose-dived along with prices on most other credit products starting around the first week of October, right after Powell's "neutral rate" speech...
... and suddenly complacency turned to sheer panic without passing go. But the catalyst for this wholesale dread was not so much the slump in prices as much as fund flows - i.e., observing in real time what one's peers are doing - and as we showed yesterday, they are selling, with Lipper reporting that loan funds saw a record outflow of $2.53 billion in the week ended December 12, a fitting culmination to the fourth consecutive week of selling.
Cue - Soundbites - Investors - Months - Oversubscribe
And then, as if on cue, the soundbites from the very same "concerned" investors who until two months ago were rushing to rushing to 4x oversubscribe any new loan deal, preferably with zero covenant protection, mutated into a cannonade of fear.
"Having outflows that are 2 to 3 percent of the market is scary. What happens if we get 10 or 15 percent?” Distenfeld, co-head of fixed income at AllianceBernstein, said on Bloomberg TV Friday. He has long been skeptical of the market. "I’m worried if this continues, we’re going to start hearing some liquidity fund issues from open-ended mutual funds."
Addition - Fears - Rates - Attaction - Debt
in addition to fears about declining rates - the primary attaction for floating-rate debt - some are worried that the bottom is about to drop out of the CLO market. As a reminder, the total outstanding volume of leveraged loans is about $1,130bn (~5.5% of GDP); of this universe, CLOs...
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