As the old adage goes, records are made to be broken, and according to LSTA’s 2Q25 Trade Data Study, they were yet again. Second quarter secondary loan trading volume surged to a fresh record $262 billion, 3.4% higher than the first quarter’s previous high and an astonishing 26% above the same time last year. Several market trends have combined to produce this record setting first half of 2025 on trading desks. Let’s start with supply, where Morningstar/LSTA Leveraged Loan Index (LLI) outstandings has increased 5% to a fresh record approaching $1.5 trillion. On the demand side, CLO issuance stands at $98 billion – just 3% off last year’s record run-rate. Furthermore, we witnessed an abnormal level of absolute flows (in and out) of loan mutual funds & ETFs which totaled a staggering $22.5 billion – noting that total flows are negative at $5.5 billion. And finally, and most pronounced, the spike in volatility (both on the upside and downside), where daily average bid levels on the LLI fluctuated 3.5% from crest through trough.
While volumes did normalize across May and June (to an average of $76.4 billion), second quarter’s total was highlighted by April’s volatility driven $109.2 billion in activity – in comparison March 2020 totaled a record $119.3 billion. Across the last twelve-month (LTM) period, trade activity totaled $925 billion while a more aggressive first half annualized figure comes in at $1 trillion-plus. Assuming that volatility and trading volumes continue to normalize over the second half of the year, the LTM figure (less aggressive) would represent a 12% increase over 2022’s record $824 billion. But isn’t the market much larger today than it was back in 2022, you might ask? Yes, its larger but not by much (5%), which brings us to the LSTA turn-over ratio. The ratio is defined as annual trading volume divided by LTM average LLI monthly outstandings. Back in 2022, annual trading volume and average monthly outstandings totaled $824 billion and 1.4 trillion, respectively, which equated to a ratio of 58%. In comparison, if we reference our LTM trading volume of $979 billion and average monthly outstandings of $1.43 trillion, the ratio comes in at a five-year best 65%, or equal to 2020’s figure, which obviously included the most volatile period for the loan market since the financial crisis.
Speaking again of volatility, levels have in fact fallen since April. At the height of the tariff induced sell-off during early April, trade levels sank several points before rallying back later in the month, a trend that continued through the end of June. But that said, average (97.2) and median June trade levels (99.6) remained off 80 and 56 basis points, respectively on the year. Conversely, June LSTA/LSEG MTM average (72 bps) and median (50 bps) bid-ask spreads on the traded universe of loans ended the quarter basically flat on the year. A key driver here was a resurgence in trading loans above par, with 37% of total June activity transacting at a price point north of 100, as compared to just 8% in April. In turn, June refinancing and repricing activity shot up to a four-month high of $45 billion. Finally, as of press time (July 24th) loan prices have continued to rally into the third quarter according to the LLI, where its average bid level sits at 97.6, off just 10 basis points on the year – a trend that highlights the rather impressive V-shaped recovery in the secondary since its nadir during Mid-April.
