September 6, 2018 - U.S. secondary loan trading volume fell 22% in July to $51.5 billion but the shortfall didn’t catch market participants by surprise given seasonal trends.  Historically, volumes generally decline  by at least 20% between June and July.  Even though July’s tally marked a year to date low for 2018, it followed the busiest two month stretch ever – the market logged volumes of $63.6 billion in May and then a near-record $66.4 billion in June.  Secondary trading volumes have totaled $646 billion over the last twelve months as compared to the record $635 billion reported across full year 2017.  Despite the slowdown, it continues to look like we are trending to a new record high.

While secondary trade activity subsided in July, prices rebounded nicely in the secondary market after two months of steady decline.  The July rally was widespread with advancers outpacing decliners at a ratio of better than 3:1.  Once more, market breadth remained robust as July marked the second consecutive month where the number of loans traded hit 1,500 or better.  All told, the S&P/LSTA Leveraged Loan Index (LLI) returned a six-month best 0.74% in July.  Better still: the LLI produced its first positive MV return (0.27%) since January as traders took advantage of oversold territory.  Trade levels in the secondary market rallied 27 basis points in July, to an average of 98.33, erasing all of June’s pullback and more.  That said, the median trade price was unchanged in July, at par, while the median mark-to-market bid-ask spread on the traded universe of loans remained range-bound at just 50 basis points.

Despite the significant uptick in primary and secondary activity during the tail end of the second quarter, par settlement times remained at the lower end of their post-change-in delayed compensation range – which covers the previous 22 months.  That trend reversed in July with the median par settlement time increasing one-day to T+13 – a day longer than the T+12 figure that was reported across the previous three months.

For more information, please contact Ted Basta.

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