May 25, 2023 - LSTA Secondary loan trading volume dropped 26% to just $58B in April, after rising to a 10-month high $78B in March. Driving April volumes lower was a substantial fall-off in market breadth, where the number of distinct loans traded fell to 1,428, after averaging north of 1,500 loans across the first quarter. April secondary activity not only represented a four-month low but also just the second sub-$60B reading in nine months (the other being a seasonally quiet December). April also marked the first time in 13 months where total trading volume fell below $800B over the rolling last twelve-month (LTM) period. In comparison, the LTM figure hit an all-time high of $830B in October and has been in decline ever since.
Year-to-date (YTD), secondary volume stands at $269B, down 10% from the same time last year. Not so surprising given that the broadly syndicated loan market has been shrinking while visible demand levels have been declining. Case in point, Morningstar/LSTA Leveraged Loan Index (LLI) outstandings ended April just shy of $1.4T; 1% lower YTD and 2% shy of their all-time high during September. Additionally, YTD CLO issuance is off 12%, to $40B, from the same time last year while loan mutual funds and ETFs have reported YTD outflows of $13.5B. That last figure balloons to $51.5B since flows first started running negative back in May of 2022.
Turning back to the April secondary where market breadth turned bullish once more – with two-thirds of loan prices advancing and just 27% declining. This was a complete reversal from March when 65% of prices declined and 29% advanced. In turn, the April median trade price rallied 50 basis points to a 98-handle while the market’s median “mark-to-market” bid-ask spread tightened eight basis points, to a 12-month low 80 basis points. And as bids strengthened across April, the percentage of trade activity at a price point of 98 or higher increased five percentage points to 55%, but that figure still trails February’s 57% share. But as readers are aware, the secondary market has lacked direction this year and remains bifurcated with 16% of April activity remaining in a sub-90 bid range. But again, this all occurred on very little trade volume. LSTA members can access more secondary trading data & analysis, here.