May 16, 2024 - LSTA Secondary loan trading volume remained elevated in April, at a 14-month best $72.5 billion. April marked the fourth month in a row where volumes increased. And while secondary activity improved by less than 1% over March, we just witnessed the strongest two-month stretch in over two years. Better still, daily trading activity has averaged $3.5 billion this year, an increase of 6% over the same time last year, and a staggering 15% improvement over the last twelve months.
As investor sentiment turned skittish in April, the equity and fixed income markets sold off considerably after a rather strong five-month stretch where the markets seemingly became overbought. That is with the exception to the floating rate corporate loan market. The total return on the Morningstar|LSTA Leveraged Loan Index remained in the black at 0.6%, despite a market-value (MV) loss of 0.16% (a five-month worst). Interestingly though, despite the MV loss, market breadth remained positive as advancers outpaced decliners by a ratio of 2:1 in the secondary. That said, price volatility was clearly more severe to the downside. In looking closer at the traded universe of loans, the average trade price fell 13 basis points to a three-month low of 96.88, while the median trade price surprisingly increased an eighth of a point to a multi-year high 99.75. At the same time, the average and median bid-ask spreads remained rangebound in a low 70 and 50 basis point context, respectively.
April’s muddled performance in loan land was a bi-product of a secondary market that became even more bifurcated by price (and subsequent trade activity). To illustrate the growing divide between today’s “haves and have-nots”, we analyzed trading volume by price range. On the top end of the market, loans that traded above par in April constituted a 48% share of total trading activity, a three-percentage point increase over March. But at the same time, the lower end of the market, or loans trading in a sub-90 range, registered a three-percentage point increase as well, upping their share of trade activity to 13%. For greater context, the par-plus dataset of loans reported an average trade price of 100.4 in April, 21 points richer than the sub-90 dataset of loans.
