European Chart of the Week: 7th October 2019
The appetite for leveraged loans and high yield bonds remains robust. On the bond side, there have been inflows into high yield bond funds, while loans have also seen inflows via CLOs and new separately managed account money. This appetite is mainly driven by the low/negative rate for longer environment, which has resulted in very strong demand for yield.
Portfolio managers say that the SMA’s are seeing inflows from a mix of Asian and European sources, and increased interest from pension funds. According to one buysider, pension funds are interested in loans “because you get a higher spread right now and less volatility on the underlying instruments and given we are in a negative rate environment, loans with 0% floors are effectively becoming a fixed rate instrument unless you think the ECB is going to start hiking soon, so you are getting a fixed spread over a fixed base rate, so loans are more like fixed rate instruments.”
Despite the healthy demand for loans, supply is down this year, with leveraged loan volume off 10% at EUR 147bn and the institutional loan segment down 8% to EUR 80bn (and the new money portion down a much larger 21% to EUR 49bn). On a quarterly basis, leveraged loan volume fell to EUR 48bn in 3Q19 from EUR 58bn in 2Q19. On the other hand, high yield bond volume climbed to EUR 26.8bn in 3Q19, topping the EUR 25.7bn posted in 2Q19. This took year-to-date volume to EUR 63.6bn, a 2% gain over the EUR 62.1bn posted in the corresponding period last year.
Colm Doherty is Debtwire’s Global Head of Primary Market Analysis. He is responsible for leading the production of primary market analysis and reports focused on the leveraged loan and high yield bond markets. Prior to joining Debtwire, Colm was Director of Analysis at Thomson Reuters LPC covering leveraged loans, CLOs and high yield bonds.
Colm has a B.A. in Economics & Legal Science from National University of Ireland Galway and an MSc. in Accounting & Finance from Ulster University.
Colm Doherty is Debtwire’s Global Head of Primary Market Analysis. He is responsible for leading the production of primary market analysis and reports focused on the leveraged loan and high yield bond markets. Prior to joining Debtwire, Colm was Director of Analysis at Thomson Reuters LPC covering leveraged loans, CLOs and high yield bonds.
Colm has a B.A. in Economics & Legal Science from National University of Ireland Galway and an MSc. in Accounting & Finance from Ulster University.
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