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3Q17 Secondary Trading Summary: Secondary Slow Down…

November 2, 2017 - U.S. secondary loan trading volume fell 15% to $138 billion during the third quarter, but was off just 2% compared to the same time last year.  Following a scorching start to the year, when first half volumes set a record for a six-month period, third quarter’s sub-$140 billion in activity represented a nine quarter low. That said, 2017’s ultra-busy first half pushed the market’s 12-month turnover ratio back up to 71%, after registering a multi-year low of 68% across 2016.  All told, trade volumes have still tracked to a record $630 billion over the last twelve months.  And over that period, an average of 446 loans traded daily with volumes coming in at $2.6 billion per day. Looking more closely at the third quarter, market breadth remained strong from a historical perspective, but understandably weakened a bit from the record levels reported earlier this year.  Across the third quarter, the number of individual loans traded monthly averaged 1,370 loans – still a relatively high number considering that last year’s average was 1,330.  At the same time, market depth, or trade frequency, fluctuated slightly as market share of loans trading 20 times or more per month fell one percentage point to a 41% share, while loans trading less than ten times per month fell by the same amount to a 39% market share.  

During September, trading volumes increased slightly to $48 billion as the market registered its first sub-98 average trade price level (97.76) since April.  Price levels are down a marginal 7 basis points on the year – not surprising considering that Market-Value Returns on the S&P/LSTA Leveraged Loan Index were in the red at 0.4% through September.  But let’s be honest here, it’s not like the secondary market has been on sale at any point this year.  Case in point: the median trade price has remained at or above par since late 2016 while the median LSTA/Thomson Reuters MTM bid-ask spread on the traded universe of loans has averaged just 50 basis points over the past six months.  And over that six month span, par-plus trading volumes have registered a 55% market share of overall trade activity while sub-90 trading fell to a multi-year low of 6%. 

On the settlement front, third quarter par settlement times remained at the higher end of the range seen since the new delayed compensation regime went live last September.  Since the end of third quarter 2016, the monthly median settlement time for par trades hit a six-year low of T+11 three times (in late 2016), and did so again in February 2017.  But as numerous market forces converged, the median time has since fluctuated between a low of T+12 (in March) and a high of T+15 (in July).  On a brighter note, settlement times have in fact begun to illustrate improvement during August and September, as the median fell back to T+13.  Better still: the percentage of trades settled within T+10 hit a six-month high 43% of trades settled during September.   While encouraging, the percentage of trades settled wider than T+20 remained at or above 30% across the past six months.

For more information on the 3Q17 secondary trading market, LSTA members can access the slides from our Trade & Settlement Study Webcast.  For more information, please contact Ted Basta at [javascript protected email address].

 

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