With the problems in the subprime mortgage market affecting the broader credit markets, bank loan mutual funds, which typically offer stable returns, are suddenly suffering losses, and investors are yanking their money out, The Wall Street Journal reports. According to AMG Data Services, investors pulled $461 million from the funds in the week ended July 25. That’s a significant amount, given that the funds collectively have $42.8 billion in assets under management, according to Financial Research Corp.
Bank loans are loans that banks have given to corporations and then resold to institutional investors. Such loans are considered below investment grade but of better quality than junk bonds because the interest rates that corporations remain steady, and in the event of a default, they are scheduled to be paid ahead of bonds.