Leveraged Bank Loan Versus High Yield Bond Mutual Funds

25 Pages Posted: 25 Jul 2019 Last revised: 21 Oct 2019

See all articles by Ayelen Banegas

Ayelen Banegas

Board of Governors of the Federal Reserve System

Jessica Goldenring


Date Written: 2019-06-21


Since the financial crisis, the markets for Bank Loan (BL) and High Yield Bond (HYB) mutual funds (MFs) have grown significantly, with assets under management increasing from $19 billion and $75 billion to close to $117 billion and $225 billion, respectively, as of December 2018. This short paper characterizes the universe of BL MFs and compare it against that of HYB MFs on several dimensions. We document that BL and HYB MFs’ respective market share of leverage loans (LL) and high yield (HY) corporate bonds outstanding increased since the mid-2000s. We also show that in terms of portfolio allocations, HYB and BL MFs hold around 60 percent of B, BB and BBB-rated assets and that exposure to foreign fixed-income markets is relatively small for both types of MFs. Finally, we document that net flows as a share of assets were larger and more volatile for BL MFs than for their HYB counterparts and that HYB MFs significantly outperformed BL MFs since early 2000.

Keywords: High Yield Bonds, Leveraged Loans, Mutual Funds

JEL Classification: G2, G23

Suggested Citation

Banegas, Ayelen and Goldenring, Jessica, Leveraged Bank Loan Versus High Yield Bond Mutual Funds (2019-06-21). FEDS Working Paper No. 2019-047, Available at SSRN: https://ssrn.com/abstract=3423251 or http://dx.doi.org/10.17016/FEDS.2019.047

Ayelen Banegas (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jessica Goldenring


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