April 22, 2025 - As volatility spiked and a wave of new loans broke for trading in March, secondary loan trading volume totaled a staggering $102 billion. Secondary activity was up 24% month-over-month and 45% over the $70 billion LTM average, according to the LSTA’s 1Q25 Secondary Trading & Settlement Data Study.
March marked the second busiest month ever in the loan market; only trailing the record setting $119 billion of March 2020 (the onset of COVID). And let us not forget, February 2025 had previously held that number two spot at $82 billion. In turn, first quarter trading volume surged to a record $253 billion, 2% higher than the previous record (1Q20) but a substantial 23% increase over the same time last year. Across 1Q25, a record 1,628 individual loans traded on average each month. That said, monthly market breadth levels did decline during February and March (from January’s high-water mark of 1,662 loans) as the sell-off intensified and traders concentrated on a smaller basket of higher priced/more liquid loans that were changing hands at a fevered pitch. To that point, monthly market depth levels (or trade frequency) increased notably across the first quarter where 67% of loans traded more than 20 times during March, as compared to just 53% in January.
Now on to the topic of price volatility. Secondary trading levels peaked at their multi-year highs back in January, which turned out to be the last leg of the record refinancing wave. At the beginning of the year, loans were trading in a 98-context on average with the median trade price rising 20 basis points above par – a level not seen since 2018. But sentiment began to turn skittish in February as frothy market conditions met head on with the newfound threat of a global trade war. In turn, bid levels fell across 17 of 20 February trading sessions, with 73% of loan prices declining and just 15% advancing. In March, sentiment turned from skittish to bearish as the White House unleashed a stream of new tariff announcements that rocked the markets. Loans were not immune to the cross-asset sell-off that ensued with the Morningstar LSTA Leveraged Loan Index (LLI), reporting a negative March return of 0.31%; the first negative reading since October 2023 and the worst monthly performance since September 2022. March Selling pressures were said to be exacerbated by an estimated $6 billion in outflows from loan mutual funds and ETFs. All told, the secondary market ended the first quarter trading in a sub-97-range for the first time in over a year. Over the three-month span, the percentage of loans trading at a premium to par fell from 66% to just 12%. But on a somewhat brighter note, left-tail risk was contained with the percentage of loans trading in a sub-90 range increasing by just two percentage points, to an 11% market share. That of course occurred during March, or pre-Liberation Day. April activity might suggest otherwise with average bid levels already falling another 125 basis points to a 95-handle, according to the LLI (through April 21st).
