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FY2021 Sec Lending Returns in Equity & Fixed Income Indices

20 January 2022 Paul Wilson

IHS Markit Securities Lending Returns to Lendable reports cover 12 broad based indices across equity and fixed income markets and allows market participants to understand potential portfolio returns from securities lending programs The reports use our proprietary analytics to track the current and five-year historical lending returns on the constituents of each index, index short interest levels, contribution by securities lending fee categories and top performing sectors/regions for these indices.

This intelligence cand insight can help securities lenders - particularly asset managers and pension funds - better analyse the value of their lending portfolio across markets and asset classes. The reports are made available to the public every month via the Securities Finance page on the IHS Markit website: Securities Lending Return to Lendable Reports

Return to Lendable reports for the FY ending 2021 highlight that global securities finance revenue increased YOY, buoyed by equity values and returning demand in Asian Equity particularly in Taiwan and Korea with the lifting of short sell bans. Corporate Bonds provided momentum as inflation expectations began to rise and heavily indebted Chinese property developers defaulted on debt.

MSCI Equity Index Returns

Increased asset values resulted in an overall fall in Returns to Lendable (RTL) across equity indices except for AC APAC Ex Japan and Emerging Markets. Short interest was broadly down, except for APAC as the removal of short selling bans in Korea and supply chain issues boosted demand for Taiwan securities. Software and Telecommunication services were two of the highest revenue generating sectors contributing over 20% lending revenue in December. The average global equity fee dropped from 31 bps in 2020 to 28.4 bps in 2021 indicating a reduction of special activity.

The table below shows the breakdown of securities lending returns to lendable for FY 2021 vs. FY 2020 across MSCI Equity indices:

  • MSCI World: Increased assets value resulted in a 21% drop in a YOY RTL. Buoyant market returns cooling short interest down 11% YOY.
  • MSCI USA: Overall RTL was down 26% as YOY returns normalized post the spike in Q2 2020, due to Covid 19 outbreak. Short interest continued to drop; our indexed short interest is down 30% since 2018.
  • MSCI Europe: YOY returns finally stabilized in 2021 after years of structural reforms around dividend trading. Short interest declined 16.4% YOY.
  • MSCI Japan: Only 6% of the Japan revenues was generated by specials, yet the returns were only down slightly YOY. Food, Beverage & Tobacco was the stand-out sector with 16% revenue contribution in December 2021.
  • MSCI AC Asia Pacific Ex Japan: RTL increased 28% YOY, buoyed by a poor 2020 covid impacted year and Korea's return. RTL was down 30% in comparison to 2019 levels.
  • MSCI Emerging Markets: A similar story to APAC, RTL was up 40% with more than 75% of return contributed by special stocks.

iBoxx Fixed Income Index Returns

The growth story in terms of Securities Lending returns to lendable was dominated by corporate bonds with increased demand to borrow and short corporate debt. Year on year indexed utilization and RTL declined for global governments and US Treasuries.

The table below shows the breakdown of securities lending returns to lendable for FY 2021 vs. FY 2020 across iBoxx Fixed Income indices:

  • iBoxx USD Treasuries: Increased asset values resulted in a 15% drop in a YOY RTL, with GC bonds contributing 97% of the return.
  • iBoxx Global Government: Overall RTL was down 11% while Utilization saw a 3% YOY drop-off.
  • iBoxx EUR Sovereigns: YOY RTL was flat with 4.3 bps. However, Utilization saw a slight uptick in comparison to 2020 levels
  • iBoxx USD Liquid Investment Grade: Continued with the YOY uptrend with RTL rising by 31% with 72% of the revenue contributed from bonds with 7+ years to maturity in December 2021.
  • iBoxx USD Liquid High Yield: RTL increased 14% YOY driven by nearly 41% specials revenue. Utilization saw a 45% YOY growth.
  • iBoxx EUR Corporates: RTL increased steadily since the end of Q3 with an YOY bump of 4%. Nearly 70% of the revenue was from BBB rated credit in December 2021.

Posted 20 January 2022 by Paul Wilson, Manging Director, Securities Finance, S&P Global Market Intelligence

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

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