The proportion of US leveraged loans trading below face value climbed this week to the highest level in nearly 18 months, offering the latest sign of mounting market stress that could weaken companies' ability to refinance existing debt.
Strategists at JPMorgan wrote in a report this week that only 7.4% of leveraged loans were trading above par on Tuesday, the lowest share in 17.5 months and far below the 30.4% recorded at the end of September and roughly 43% at the end of August. As of Wednesday morning, that proportion had recovered only slightly to 9.7%.
The lower-rated segment of the US leveraged loan market is coming under pressure. As rising interest rates push up borrowing costs, investors are watching closely whether the most vulnerable companies can repay their loans or issue more debt. The interest rates on such debt are tied to benchmark rates and move with central bank policy rate changes.
JPMorgan strategists wrote on Wednesday that leveraged loan funds saw outflows of about $445 million this week, compared with inflows of $974 million last week. Although final data has yet to be released, any outflow from floating-rate leveraged loan funds would mark the first in 18 weeks.
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