Now on to the topic of volatility, where trading levels continued to run higher after falling precipitously during the seven-day stretch that followed the “Liberation Day” tariff declaration on April 2nd. During May, the broader secondary advanced during 18 of 22 trading sessions, on a bullish advancer/decliner ratio of 6.5:1. All told, average (96.7) and median (99.25) trading levels rebounded 40 and 100 basis points, respectively. And as prices moved higher across the secondary, bid-ask spreads (based on LSTA/LSEG MTM bid and ask values on the traded universe of loans) tightened, with the average and median spreads improving by 15 bps (to 83 bps) and 21 bps (to 67 bps), respectively. From a trade activity standpoint, par-plus market share continued to be the most volatile segment of the market, where activity rebounded to a 27% market share in May after falling to just 8% in April. Back in January that figure stood at 60% before declining to 29% by the end of March.
Even though the secondary market did in fact find its bottom rather quickly by April 9th (when prices hit 2-year lows) it remains in search of a catalyst to re-capture its January highs with average trade levels still off 125 bps. While true, there are a number of positive technical data points to digest as we look to close out the first half of 2025. First, despite the aforementioned YTD market value loss, the Morningstar|LSTA Leveraged Loan Index still reported a total return of 2% on the year, thanks to an impressive 65 basis point monthly interest carry. Second, the primary market re-opened in May, according to LevFinInsights, who reported that $31.5 billion worth of institutional loans cleared market. And lastly, visible demand levels made quite the comeback in May with retail loan funds and ETFs reporting inflows of $905 million alongside a six-month best $20 billion in CLO new issuance, according to LSEG LPC.
