Record Outflows in US Risky Debt Amid Tariff Turmoil

$8.6b Pulled From Leveraged Loan Funds in a Week as Investors Shun Corporate Debt

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NEW YORK - US leveraged loan funds had their biggest-ever weekly outflow as investors dumped corporate debt across the board on concern that the tariff-spurred market turmoil will hit the US economy.

Leveraged loans are ones that lenders extend to companies that have considerable amounts of debt or a poor credit history. Lenders consider leveraged loans as carrying a higher risk of default and, as a result, a leveraged loan is more costly to the borrower.

An estimated US$6.5 billion (S$8.6 billion) was pulled from the funds in the week ended April 9, according to data from LSEG Lipper, as prices on the risky debt hit their lowest since mid-2023. The previous record outflow of US$3.6 billion was set in December 2018.

Amid recession fears, the loan market is getting hit by outflows as people expect that the Federal Reserve will be forced to cut interest rates earlier than expected, while a cohort of credit investors may be looking to add liquidity to their portfolios in the volatility.