Expectations for a dovish Fed in 2019 are taking some air out of leveraged loans, the market for large corporate debt that has the attention of economists and regulators searching for the next asset bubble.

Leveraged loans — and the collateralized loan obligations they are packaged into — are floating rate investments, meaning they’re a favorite for investors looking for attractive yields in a rising rate environment. When interest rates go up, so do returns on floating rate instruments.

But with the Fed signaling in its December meeting that it is backing off of its original projections for three 2019 rate hikes, leveraged loan markets have seen dramatic outflows as investors flock back to fixed-rate assets.

Bank of America’s Yunyi Zhang noted that each week seems to bring a new record level of outflows from U.S. leveraged loan funds and ETFs. For the week ended Dec. 26, loans saw $3.35 billion in outflows, adding up to a cumulative $12.78 billion in outflows over the last six weeks.

‘Unpleasant memories of the sub-prime loan debacle a decade ago’

The shakeup in leveraged lending is rattling historically steady funds. The Invesco Senior Loan ETF, which invests primarily in the largest institutional leveraged loans, has lost more than 5% in the last two months, similarly revealing investor flight from the riskier corners of the fixed-income markets.

Jay Bryson, global economist at Wells Fargo, wrote in a note that the weakness in recent weeks “may bring back unpleasant memories of the sub-prime loan debacle a decade ago,” noting deteriorating conditions in the non-financial corporate sector.

Bryson told Yahoo Finance that while he doesn’t see leveraged loans bringing the economy to its knees anytime soon, corporate debt has weakened as companies with heavier loads of debt yield lower returns on assets.

“If i had to give a letter grade to the corporate sector I would give it a ‘B-’ right now,” Bryson said.

‘People buy companies with leverage’

To be fair, leveraged loans have historically low default rates, but if interest rates continue to rise, speculative-grade corporate bonds could see upward pressure. That could exacerbate already tight financial conditions in a late-stage economy that some see headed for a slowdown.

In its final FOMC meeting for 2018, the Federal Reserve raised rates by 25 basis points for the ninth time in this cycle. For corporate borrowers, a rising benchmark interest rate makes it more expensive to pay off the leveraged loans often used for expensive transactions like a buyout. With corporate debt market conditions deteriorating, concerns are mounting that if those companies are unable to meet their loan obligations, the leveraged loan market — and the collateralized loan obligations they are wrapped into — could come crashing down.