April 25, 2024 - 1Q24 loan trading volume surged 25% to a four-quarter high $205 billion, according to the LSTA’s Secondary Trade Data Study.  1Q24 secondary activity represented the first $200 billion-plus showing in a year and the first quarterly increase in trading volume since the same time last year.  While 1Q24 volumes were in fact down 3% year-over-year, let’s not discount what a great start to the year it has been (given that volumes averaged just $164 billion per quarter over the second half of last year – the slowest six-month stretch in seven years).  Furthermore, monthly volumes improved during each of the first three months of the year, with March activity rising an impressive 7% to a 13-month best of $72.2 billion.  Better still, just 10% of March activity transacted in a sub-90 price context.

As market sentiment became more bullish across 1Q24, traders chose to cast a wider net across the secondary to successfully put money to work, which led to an improvement in market breadth, or the number of distinct loan facilities traded.  To that point, an average of 1,550 loans traded per month across 1Q24 – a noteworthy 5% rise over the average monthly figure reported during the second half of last year.   And of course, a key driver here was a burgeoning CLO market that enjoyed the second busiest quarter since the GFC; at almost $50 billion in activity.   Away from CLOs, loan mutual funds and ETFs reported inflows of more than $4 billion across the quarter -the best three month stretch since the Fed began raising rates two years ago.  Clearly, as visible demand levels were rising, liquidity markers were improving with more than 50% of 1Q24 trading volume transacting at a “Mark-to-Market” (MTM) bid-ask spread of 50 basis points or less, according to LSTA/Refinitiv MTM bid and ask loan prices.  Furthermore, the influx of new liquidity into the secondary pushed 40% of trading volumes at a price point north of par, with the median trade price rising into a 99.625 context by the end of March.  And while volumes swelled in the secondary, that same excess demand drove opportunistic deal flow in the primary.  Clearly, borrowers were the beneficiaries with extensive refinancing activity allowing for sizable reductions in interest expense and/or maturity date extensions. 

From so many vantage points, the first quarter was a success, and the LSTA’s Trade Data Study went on to highlight several other positive market trends.  First, MTM median bid-ask spreads on the traded universe of loans continued to tighten, ending March at a two-year low 50-basis point range.  Second, MTM price accuracy (as measured by the absolute differential between trade and MTM prices on trade date), continued to tighten; with the median differential falling to a three-year low of just 13 basis points.  Third, the percentage of par trades settled within T+7 reached a four-year best of 34%.  Even more impressive, the percentage of buyside sales settled within the same seven-day period swelled to 52% -marking the first time that figure increased above a 50% market share since the LSTA began tracking that statistic back in 2016.