Since rates are typically reset once per quarter, senior loans typically have low durations – a measure of a bond fund’s sensitivity to changes in interest rates. The floating-rate component also offer investors an alternative method of earning yields while mitigating interest-rate risk. Consequently, bank loans are seen as an attractive substitute to traditional corporate debt in a rising rate environment.
Because rates are typically reset once per quarter, senior loans typically have low durations. Since the senior loans have rates that adjust periodically, the floating-rate loans also offer investors an alternative method of earning yields while mitigating interest-rate risk.
Bank loan funds have recently been bright spots among fixed income funds.
“Excluding bank loan funds and traditional junk bonds, investors have cut back on traditional bond fund holdings in recent weeks. Some $3.2 billion rolled out these bond funds last week following a $6.2 billion withdrawal one week earlier, according to Hans Mikkelsen at Bank of America Merrill Lynch,” according to the Journal.