1Q18 Secondary Trade Data Study: A Sneak Peek

April 26, 2018 - U.S. secondary loan trading volume increased 5% in March to $54.6 billion, bringing first quarter volumes to $164 billion.  Trade activity increased 10% quarter-over-quarter but fell 11% year-over-year.  (To be fair, the comp is tough: first quarter 2017 did set a record at $181.6).  An average of 451 loans traded each day so far this year with daily volumes totaling in excess of $2.6 billion.  Furthermore, average monthly market breadth (the number of unique loans traded monthly) hit a record 1,472 loans during the quarter – with March being the fifth consecutive month seeing more than 1,450 unique loans trade.  Liquidity has obviously held up well so far this year as the secondary market expanded to record levels.  Case in point: S&P/LSTA Leveraged Loan Index outstandings are just $5 billion shy of the $1 trillion mark; meanwhile the number of issuers topped 1,000 for the first time.  On the year, those figures have grown 3.6% and 4.7%, respectively. 

While trade activity has been robust, some traders have commented that volumes could have actually been much higher if it wasn’t for the lack of volatility in the market.  As an example, the median trade price has remained at or above 100 for the past 19 months (over the past three months the median was 100.25 or better).  And while prices remained high, the median LSTA/Thomson Reuters Mark-to-Market bid-ask spread on the traded universe of loans tightened to just 48 basis points (a post-credit crisis low). 

That all said, the most intriguing first quarter trend emerged on the settlement front.   Settlement times were much improved during the quarter, particularly during February and March, even as a growing number of loans referenced one- or two-month LIBOR.  (Indeed, according to Nomura, 60% of loans in CLOs referenced a rate shorter than three months.)  Despite this added nuance,  the median settlement time on par trades came in at T+11 – the lowest level reported since late 2016 when the LSTA’s new delayed compensation regime first began.  So what drove the improvement?  More than 50% of trades settled within T+10 during February and March…and 34% settled within T+7. 

To find out more on all these trends, please join us on Monday, April 30th for the 1Q18 Secondary Trading and Settlement Webcast.

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