June 25, 2025 - Market volatility remained elevated in May as trading levels continued to rally off their tariff induced lows of mid-April.  In turn, LSTA trading volume totaled a robust $79 billion during May, a 9% increase over the same time last year, but a rather sizeable decline from March and April when volumes averaged a record $105 billion.  It was in fact a historic run during the three-month period ended April 2025, where monthly volumes surged to 3 of the top 4 most active months in the history of the loan market.  But let’s not discount May’s figure just yet as it still marked the 7^th busiest month on record and came in well ahead of the pre-February 2025 LTM period – where monthly trading activity averaged $70 billion, with a high mark of $79.4 billion.  To put 2025’s run-rate in better perspective, annualized trade activity through May would surge to a full-year figure just north of $1 trillion – or 29% higher than 2022’s record $824 billion.

Now on to the topic of volatility, where trading levels continued to run higher after falling precipitously during the seven-day stretch that followed the “Liberation Day” tariff declaration on April 2^nd.  During May, the broader secondary advanced during 18 of 22 trading sessions, on a bullish advancer/decliner ratio of 6.5:1. All told, average (96.7) and median (99.25) trading levels rebounded 40 and 100 basis points, respectively. And as prices moved higher across the secondary, bid-ask spreads (based on LSTA/LSEG MTM bid and ask values on the traded universe of loans) tightened, with the average and median spreads improving by 15 bps (to 83 bps) and 21 bps (to 67 bps), respectively.  From a trade activity standpoint, par-plus market share continued to be the most volatile segment of the market, where activity rebounded to a 27% market share in May after falling to just 8% in April.  Back in January that figure stood at 60% before declining to 29% by the end of March.

Even though the secondary market did in fact find its bottom rather quickly by April 9^th (when prices hit 2-year lows) it remains in search of a catalyst to re-capture its January highs with average trade levels still off 125 bps.  While true, there are a number of positive technical data points to digest as we look to close out the first half of 2025.  First, despite the aforementioned YTD market value loss, the Morningstar|LSTA Leveraged Loan Index still reported a total return of 2% on the year, thanks to an impressive 65 basis point monthly interest carry.  Second, the primary market re-opened in May, according to LevFinInsights, who reported that $31.5 billion worth of institutional loans cleared market.  And lastly, visible demand levels made quite the comeback in May with retail loan funds and ETFs reporting inflows of $905 million alongside a six-month best $20 billion in CLO new issuance, according to LSEG LPC.