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iBoxx Liquid Leveraged Loan TRS Reaches Record Volume

21 January 2020

The following updated was contribtued by Frantz Castor, Index Product Manager, IHS Markit

iBoxx Standardized Total Return Swaps ("iBoxx TRS") referencing the Markit iBoxx USD Liquid Leveraged Loan Index ("iBoxx Liquid LLI"), which offers exposure to liquid loans, hit record volumes again. With traded notional volume of approximately $ 3.9 billion in December 2019, the iBoxx USD Leveraged Loan TRS reached a new milestone, breaking through the previous high from June at $ 3 billion.

iBoxx TRS on high yield and investment grade corporate indices (EUR and USD) recorded more modest total volumes in December as expected, which makes the record growth in volumes on leveraged loans with its additional $ 1.7 billion even more significant. This reflects an 80% growth compared to the previous IMM month and 26% growth vs. June.

Table 1 - iBoxx USD Leveraged Loan TRS identifiers

Figure 1 - iBoxx USD Leveraged Loan TRS Monthly Notional Volume ($ Mn)

As reflected in the above chart, the leveraged loan sector was very active in December displaying significant growth in both market participants and trade count (up by 64%). That brings the number of market participants trading iBoxx TRS to 272 (up from 256 in June).

iBoxx TRS, introduced in 2012, offer exposure on an unfunded basis to specific segments of the fixed income market, allowing market participants to invest long or short iBoxx indices. The instrument covers the major currencies and segments of the fixed income market - EUR, GBP as well as USD investment grade and high yield, leveraged loan or AT1 contingent convertibles. The product is widely adopted by the market, and currently, there are ten active licensed market makers (vs. three in 2012) providing liquidity and pricing for iBoxx TRS.

The Reference Index

The iBoxx USD Leveraged Loan TRS references the Markit iBoxx USD Liquid Leveraged Loan Index which is a subset of the benchmark Markit iBoxx USD Leveraged Loan Index ("USD LLI"). The iBoxx Liquid LLI tracks the total return of the 100 most liquid loans from the USD LLI index universe, offering a powerful insight into the loan market.

The total return for liquid loans in 2019, gauged by the iBoxx Liquid LLI, was 9.74% compared to -0.6% returns for investors in 2018.

Figure 2 - Indices Performance (Total Return Index Level)

Table 2 - Indices Performance

The iBoxx Liquid LLI has been designed to be an ideal underling for tradable products. To that extent, it's worth mentioning the Highland iBoxx Senior Loan ETF that tracks investment results corresponding to the price and yield performance of the Markit iBoxx USD Liquid Leveraged Loan Index. As of January 15th, 2020, the fund displayed a total AUM of approximately $ 265 million.

Also, iBoxx Liquid LLI is the primary benchmark of the actively managed fund SPDR Blackstone/GSO Senior Loan ETF. That fund offering exposure to active management in the highly inefficient loan market recorded $2.6bn of AUM as of January 15th, 2020.

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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