Monthly Securities Finance Market Review November 2022
Mike Norwood, Head of EquiLend Trading Solutions, unpicks November’s trading activity and shapes a picture of trends in the securities finance market in November’s Securities Lending Trading Analysis.
November was a mixed month as global financial markets rallied in the face of persistent, elevated inflation and continued global political uncertainty. As a result, Q3 earnings results, while perhaps better than expected, ranged from mixed to slightly negative sentiment wise.
Financial industry experts broadly agree that inflation may be at or near peak levels with consumer price index, a key inflation barometer beginning to cool, echoing the chorus from global economists. European Central Bank Chief Economist, Philip Lane, stated “It’s probably too early to make [a] judgment” whether inflation is cresting, “but I would be reasonably confident in saying that it is likely we are close to peak inflation…”.
Markets saw meaningful volatility in rates as the Fed has indicated they may be reducing the pace of rate hikes. The December meeting indicated that the Fed may look at a 50-bps rate hike vs 75-bps as a next move should they be forced to take further action to control inflation.
Multiple publications have highlighted the continuation in risk off stances from Hedge Funds with leverage continuing at reduced levels. This attitude is captured in our review of market activity on EquiLend’s NGT securities lending trading platform where total executed trade counts were 2,373,366 v. $2.27T. This reflects a 4% decrease from October trading levels but demonstrates the continued strength of the lending market in 2022 as a year-on-year 3% increase in volumes compared to November 2021. Industrials (256,640 trades count) and Consumer Discretionary (233,880 trade count) remained the most active sectors, with healthcare (226,424 trade count) returning to the #3 spot and Financials (219,724 trade count) and IT (219,316 trade count) rounding out the top 5.
Corporate credit remained active on the NGT platform particularly in North America as US and Canadian bonds hit a new daily average high of 21,458 trades agreed on the trading venue. Investment grade bonds drove the majority of interest as we observed a shift in execution of IG which outpaced high yield at a rate of 4:1, up from a tighter 2:1 ratio back in April of this year. This is broadly in keeping with the tendency of investors to short investment grade debt as interest rates move aggressively.
The story across the last half year has had obvious repeated themes: inflation, economic and social unrest and the impact of Central Bank decisions, which will continue as key market themes into 2023. What will be truly interesting to see, if observations around having reached peak inflation are correct, is the longevity of the volatility control measures which have been introduced.
Our January 2023 Trading Analysis will assess global financial markets in 2022. Join us in early January for that market trading look back.
EquiLend is a global financial technology firm offering trading, post-trade, market data, regulatory and clearing services for the securities finance, collateral and swaps industries. EquiLend has offices in New York, Toronto, London, Dublin, Hong Kong and Tokyo.