Investors are pouring money into US leveraged loan funds, fuelling some of the biggest gains in credit markets this year, in a high-conviction bet that rates will be slow to fall and junk-rated corporate America will withstand the pressure of elevated borrowing costs.

Leveraged loans have gained 2.52 per cent this year, outpacing junk bonds and investment-grade corporate debt as investors flocked to the sector. The Invesco Senior Loan ETF, the largest passive floating-rate vehicle backed by risky debt, had US$2.6 billion (S$3.5 billion) of inflows in the past five months alone, the longest streak since at least 2019.