February 18, 2021 - 2021 started off with a flurry of trading activity across the capital markets, and U.S. leveraged loans were no exception. LSTA secondary loan trading volume increased 32% in January to a nine-month high of $67.4B. January’s tally was 9% higher than the same time last year and 27% higher than the previous six-month average of $53.4B. Average daily volume (ADV) in January was $3.5B, roughly $400M higher than full year 2020’s figure. This is true even as the FY figure included the record $5.4B registered across the height of the loan market sell-off back in March. In comparison, January ADVs for corporate bonds hit their highest levels since June of 2020, with $29 billion trading in investment grade bonds and $12 billion in high-yield bonds, according to a recent research report by Greenwich. The report also noted that high-yield ADV for the month came close to the levels seen during the market crisis in March and April.
Back to the secondary loan market, where heavier volumes were supported by strong market depth. A total of 1,540 loan facilities traded in January, an 8% increase over December. Furthermore, January marked just the second time in the last 12 months where the monthly loan trade count exceeded 1,500. While breadth improved, the advancer/decliner ratio fell to a still bullish 8.4:1 in January as compared to the 15:1 ratio registered across the last two months of 2020. That said, the average trade price continued to push higher while the median trade price finally got within earshot of par for the first time in more than a year. The average trade price increased 55 bps to 98.03 in January, marking the first 98-plus reading since November 2018. At the same time, the median trade price spiked 88 bps to a 13-month high of 99.88; we’d note that prior to last January, the monthly median price level had been reported at par or higher during a 26-month period spanning September 2016 through October 2018. Alongside higher prices, LSTA/Refinitiv mark-to-market bid-ask spreads (on the traded universe of loans) also hit their own 13-month bests as average and median bid-ask spreads ended January at 88 bps and 75 bps, respectively.
Another key metric in defining the secondary market’s V-shaped recovery is the recent rapid rise in par-plus trading activity, which nearly tripled in January to a 37% market share. That figure sat at 43% prior to the onset of the COVID-19 pandemic before declining to less than 1% from March through June 2020. While investor sentiment has unequivocally improved over the past three months, the market’s ongoing supply/demand imbalance has left traders little option but to pay a premium to par in the secondary for sought after credits, including those fresh off syndication. To that point, the new issue average break price hit 100.3 in January, up from a 99.9 handle in December, according to LCD. And of course, this trend has met head on with the highest level of repricing activity to hit the market since the last repricing wave took place back in January 2020.
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Executive Vice President|Market Analytics & Investor Strategy