July 25, 2019 - After recording consecutive record highs during the fourth quarter of last year ($211 billion) and again during the first quarter of this year ($212 billion), secondary loan trading volumes decreased 10% in the second quarter, to $191 billion.   Second quarter’s tally represented a 4% increase over the same time last year (which by the way, was the first time trade activity exceeded $180 billion).  While market breadth (the number of distinct loans traded) remained flat during the quarter, at an average of 1,500 loans per month, market depth (trade frequency) pulled back from its post-credit crisis high.  During the first quarter, the percentage of loans trading twenty times or more per month peaked at a 55% market share, but fell to 50% in the second quarter.   Finally, daily trading volume across the second quarter averaged $3.1 billion per day, a 5% reduction over the last twelve months (LTM), while the average number of individual loans traded each day stayed within its LTM range of 550 loans.

The second quarter slowdown didn’t actually begin until May, when volumes decreased 10%, to an eight-month low of just $61.3 billion.  June came in slightly lower at $61.1 billion.   The common theme, of course, is the strong correlation between price volatility (to the up- or downside) and trade activity in the secondary loan market.  To that point, during three of the first four months of 2019, prices increased rapidly (with exception of March) and S&P/LSTA Leveraged Loan Index returns averaged nearly 2%.  But price volatility normalized during May and June, as returns totaled negative 0.2% and 0.2%, respectively.  Price action clearly became muted as the second quarter wore on with the median trade price moving higher by just an eighth of a point to 99.125.  Even more telling, the average trade price was flat at 97.11.  Mark-to-Market bid-ask spreads on the traded universe of loans remained mostly unchanged as well.  The median and average bid-ask spreads both tightened four basis points across the quarter to 62 and 74 basis points, respectively.  Despite the range bound market, higher priced (and rated) loans proved to be active.  Par-plus market share (which has been dominated by BB rated loans) climbed to an 18% share of total volume, nearly quadruple first quarter’s 5% reading.  At the same time, loans trading in a sub-98 price context fell to a 28% market share of overall trading; nine percentage points lower than last quarter.