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MSCI World index lending monthly return lowest since
February
MSCI USA declining special contribution
iBoxx USD Treasuries index returns decline steadily
To add a common understanding of securities lending returns,
we've created monthly reports for industry standard iBoxx fixed
income indices and MSCI equity indices, with highlights below. In
these reports, we feature the securities lending fee or spread
return, however it is also worth noting that returns to reinvested
cash collateral also delivered excess YTD returns for lenders, as
falling rates benefitted short term rates instruments.
Government bond lending revenues soared in March and have
steadily trended down since then. The increased returns have been
most prevalent, and lasting, for US sovereign debt. Returns for
lenders of corporate debt have continued to decline from their peak
in Q4 2018, with consistently increasing supply outpacing borrow
demand, particularly following the Federal Reserve messaging to the
market in late March.
iBoxx USD Treasuriesindex
returned an annualized 4.5 - 9.7 bps from securities lending fees
for July, the lowest return on lendable assets since February.
iBoxx Global Governmentbond
index lending returns were boosted by UST exposure, with 4.1 -
7.3bps in July returns to lendable assets. July was the first month
YTD that the entire index was GC.
iBoxx EUR Sovereigns index returned 3.5 - 4.1bps in July, the
lowest return for any month YTD.
iBoxx EUR Corporatesreturned
1.4 - 1.9bps in July, the lowest return since February. The index
return increased by more than the broader EUR corporate universe in
Q2, owing to a greater weighting toward a HY bond trading special.
The issuer collapsed in Q2, which caused the borrow demand to
decline and July revenues to decline.
iBoxx USD Liquid High
Yieldindex return to lendable assets has declined by more than
50% YoY, with the July return to index assets the lowest for any
month YTD. The return contribution from specials fell by 9% MoM
compared with June.
iBoxx USD Liquid Investment
Gradeindex lending returns continue to decline after a brief
uplift in March. The annualized 0.2 - 0.3bps return general was
driven by GC balances as specials contribution to returns trends
downward.
Global equity utilization has trended steadily downward from the
YTD peak in late March. Revenues increased throughout Q2 as the
result of greater special balances, however that trend reversed
course in July and while returns remain elevated compared with the
start of 2020, the current trajectory for lending returns is
downward. To add a common understanding of those returns, we've
broken out by the industry standard MSCI equity indices, with
highlights below.
MSCI Worldindex returned 1.2bps
- 1.8bps for July 2020, with the US contributing 32% of the return,
reflecting a decline from the 42% contribution in June.
MSCI USAindex return to
lendable fell to 0.5 - 0.7bps, the lowest return since February.
Return contribution from specials declined to 52% in July from 75%
in June.
MSCI Europeindex return to
lendable fell to 3.1 - 7.3bps. The YoY increase in July returns is
the result of delayed dividends and German specials.
MSCI Emerging Marketsindex
returned 3.2 - 6.4bps, the lowest for any month of 2020. Returns
remain on the steady downtrend they've been on since December 2019,
with specials contribution declining.
Short term peaks in returns for the MSCI World and MSCI USA
indices relate to exchange offers, which generate significant
revenues for shareholders who agree to forgo the offer in order to
lend shares.
Posted 18 August 2020 by Sam Pierson, Director of 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.
