New demand stokes red-hot loan market

Perturbed by the recent trend of spread widening, fixed-income investors are turning to the loan market—traditionally the preserve of banks—to protect themselves against a possible turn in the credit cycle. Steven Miller reports

During the first quarter of this year, a deluge of institutional investors stormed the loan market pushing the ranks of non-bank investors to a record high of 189 from 170 at the end of 2004 and 133 a year earlier. These new players came from every corner of the investor universe: hedge funds, mutual fund managers, pension funds investing through separate accounts, high-yield investors and structured finance vehicles.

But the exuberance that investors are showing toward the loan