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Secondary Trading Volumes Tracking to All-Time Highs

September 21, 2017 - After falling to a 26-month low in July, U.S. secondary loan trading volumes increased 12% during August to $47.4 billion.  And after a very busy six-month run to start the year (and a seasonally slower summer), trading volumes have totaled $434 billion through August.  As the LSTA Chart of the Week chart_092217vs2 indicates, this is a 10% increase over the same period last year.  Better still, over the last 12 months, trade activity has swelled to $636 billion, a significant $30 billion ahead of 2014’s standing record.  This surge in activity has pushed the market’s 12-month turnover ratio to 72% after registering a multi-year low of 68% across 2016. 

As trading volumes trended higher in August, so did the number of loans traded, which increased back above 2017’s monthly average of 1,400 individual loans.  But as we discussed in our latest Secondary Market Monthly, the VIX spiked in August on geopolitical concerns while S&P LCD’s Loan Volatility Metric (LVM) jumped past 10% for the first time this year.   As a result, many investors shed risk and flocked to safe-haven assets. (While perhaps due partially to changing interest rate expectations, it is notable that loan mutual funds reported net outflows of $500 million – the first such occurrence in more than a year.).  And the risk-off trend was evident in trading volumes, where – excluding CLOs – sale volume outpaced purchase volume at nearly a 2:1 ratio.  In turn, the average trade price fell 33 basis points to 98.15.  And to no one’s surprise, the energy and retail sectors led the list of laggards – after reporting market value losses in August of 2.5% and 1.7%, respectively. 

But all was certainly not lost in August as the median trade price fell by just an eighth of a point – to a still frothy 100.125 handle.  That said, the percentage of August trading volumes at a price point above par fell to a three-month low of 52% (from 57%). On the “lower end” of the market, sub-98 trade activity increased to a six-month high 21% market share (from 17%).

LSTA Full and Associate Members can access the full Summary, including charts, here (located under Secondary Trading Monthly).  For more information, please contact Ted Basta.

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