Monthly Securities Finance Market Review: May 2023
EquiLend’s Head of Trading Solutions, Mike Norwood, shares his monthly market review for securities finance amid ongoing global and economic turbulence. The following data has been measured and derived from EquiLend NGT.
U.S. debt ceiling uncertainty proved a headwind for markets globally throughout the month with only pockets of positive performance, and the CBOE Volatility Index sank to its lowest post-pandemic levels. On EquiLend’s NGT platform, 2,538,988 trades were executed versus $2.45 trillion in notional in May 2023, up over 14% from April but down 2% year on year.
In May, fixed income remained in demand in the global lending markets, representing 25% of total volumes executed. Investment-grade debt continued to be in focus and accounted for the majority of all bonds traded on platform. U.S. corporate debt jumped 17% from April to May. Within the U.S., high-yield trade counts were up 8% while notional increases were up 10%. U.S. investment-grade bonds increased 21% in trade count and 18% in notional value.
The trend of increasing trade counts in European investment-grade bonds continued in May with a 10% rise in total trades and notional increase of 34% from the month prior. APAC and LatAm fared similarly to Europe on notional, while trade counts were flat to down in both regions on relatively light volumes.
Global equities experienced a 13% increase in trade volumes on the NGT platform during May. Specials activity ticked up, with a 10% increase in the number of trades over 300 bps executed globally compared to the prior month. In GC-focused activity, NGT recorded double-digit growth in multiple regions. U.S. and APAC volumes were up 15% and 7% respectively, while Canada and EMEA gained 7% and 8%, respectively.
The most in-demand international markets included France, Japan, Germany, Canada and Switzerland. LatAm saw explosive growth in trade counts, up 56% in the GC space month over month. Global GC to non-GC ratios were unchanged from April’s figures.
Borrowing demand broadly slowed in May 2023 compared to the same month last year. North America bucked the trend somewhat, with equities flat and debt up 8% and 36% in the U.S. and Canada, respectively.
Softening demand in EMEA lending markets was reflected in all asset classes. Strong relative performance of Eurozone markets in dollar terms resulted from U.S. debt ceiling concerns making non-USD markets less attractive to short. Likewise in APAC, lending activity was down in Japan, our second-largest trading market on NGT, as returns were up for long-holders on the back of respectable earnings and strong GDP growth. Limited directional demand for borrowing resulted in APAC down 26% in trade counts year on year.
Three of the 11 U.S. equity sectors posted positive returns for the month (IT, Communications and Consumer Discretionary) while Energy, Utilities and Consumer Staples took the biggest hits. The sectors with high borrowing demand were Industrials, Financials and Consumer Discretionary.
In the lending markets, things picked up a bit in the last week of the month with mounting concern about whether a deal would be reached on the U.S. debt ceiling, which ultimately transpired at the start of June. We saw borrowers’ attention directed toward regional bank stocks, along with debt-focused ETFs (HYG, MUB, TAN and others) and artificial intelligence names and chipmakers also entering the mix. Orbisa investigated this theme with its recent analysis on AI companies.
Looking ahead, the developments in the upcoming months should be interesting with the ongoing macroeconomic volatility, persistent inflation and continual Central Bank rate hikes resulting in very active lending markets.
Follow securities finance trends, trading analysis and commentary with EquiLend’s Monthly Trading Commentary across 2023.
EquiLend is a global financial technology firm offering Trading, Post-Trade, Data & Analytics, RegTech and Platform Solutions for the securities finance industry. EquiLend has offices in North America, EMEA and Asia-Pacific and is regulated in jurisdictions around the globe.