August 19, 2021 - by Ted Basta. As prices pulled back off their highs in July, LSTA secondary loan trading volume dipped 11% to an eight-month low of $62B.  This is hardly surprising, given the normal summertime slowdown we witness each year.  Further to that point, secondary trade activity has remained quite robust this year, as July activity represented a 20% increase over the same time last year.  And, even with a decline, July’s trading activity still came in slightly ahead of the LTM average of $61.8B.  So far in 2021, secondary trading volume is tracking to an all-time high, although annualizing just seven months of data could always come back to haunt you.  Recognizing those perils, we still note that annualized volumes total $812B this year, representing a sizable 5% increase over last year’s record $770B.  That 5% gain is currently tracking exactly to the 5% increase in S&P/LSTA Leveraged Loan Index outstanding (LLI) this year.   

Speaking of the LLI, July marked just the second time this year, and the third time since the March 2020 sell-off, when trading levels didn’t tack on monthly gains (the index reported a market value loss of 0.35% which drove the total return on the index to negative 0.01%).  That said, the median trade price fell by just an eight of a point to 99.75, as most trading losses were contained to sectors closely tied to the pandemic, such as Leisure and Air Transport.  At the same time, the median LSTA/Refinitiv mark-to-market bid-ask spread level (on the traded universe of loans) remained unchanged at 44 basis points.  From a historical perspective, today’s bid-ask spread sits just six basis points off its all-time tights reported in 2007.

On the settlement front, closing times in the secondary loan market have been worsening for the better part of the past 17 months (excluding the March 2020 sell-off period).  In July, the average time to settle a par trade increased to a seven-year high T+23.  On a percentage basis, monthly par settlement times have lengthened 29% since December.  But, because historical analysis has illustrated that settlement times normally widen in July, we turn to year-over-year comps to better illustrate today’s figures.  July’s T+23 figure stands three days (13%) wider than one year ago and six days (37%) longer than July 2019.  The same trend is seen in the median time to settle.  Although the median remained flat at T+15 in July, it signifies that 50% of par trades are settling wider than three weeks.  From a T+7 perspective, just 20% of trades settled within the LSTA guideline during July, a nine-percentage point reduction from last year’s monthly average.  To put July’s figure in other words, 80% of par trades were paying out some level of delayed compensation in July.  Furthermore, the tail of the par settlement distribution (settlements wider than T+20), has increased 10-percentage points this year, to a 39% market share, nearly double that of the T+7 distribution.        

For more information on the LSTA’s Trading Analytics, please contact Ted Basta.

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