LONDON (Reuters) – The price of loans in Europe’s secondary market moved lower again to new record lows of 82.76 percent of face value as the extent of hedge funds’ quarter-end redemptions weighed on already weak sentiment.
Average bids on Europe’s top 40 leveraged loans lost another 70 basis points on Tuesday and breached 83 for the first time to reach 82.76 percent of face value, according to RLPC data.
Europe’s most actively traded leveraged loans suffered their biggest-ever monthly loss in September, losing an unprecedented 425 basis points since Sept 1, the data show.
The new lows follow the overnight rejection of the first draft of the $700 billion relief package by the U.S. Congress, which sent global equity markets into a tailspin and pushed dollar-based funding costs for banks to new highs.
The overnight dollar rate reached a 7.5 year high at 6.87 percent, according to Reuters data, despite concerted effort by central banks to pump money into the banking system.
Indicative bids on cash loans dropped, as hedge fund selling continued amid light trading, which highlighted the selling of liquid cable names that are heavily owned by hedge funds, traders said.
“This week’s pressure is all about the hedge funds. Cable names were active today on the downside, such as Numericable, NTL, Casema, Amadeus, UPC along with other names that hedge funds play in because they’re liquid,” one trader said.
The market saw a trickle of two-way trading with a handful of opportunistic buyers picking up small chunks of debt at low levels, but traders remain concerned about further selling pressure coming from year-end balance sheet management.
“Banks will soon be thinking of year-end, and we’ll see more paper,” the trader said.
The LevX S3 senior index closed at 97.77-98.12, gapping wider from a midday mark of 97.61-97.95 according to Markit.
Traders said the new S3 index, which rolled on Monday, had found a trading range and was relatively stable, although reduced volume was going through.
(Reporting by Zaida Espana, editing by Gerald E. McCormick)