Regulatory changes, ever-evolving trading technology and the use of commission sharing arrangements (CSAs) have caused secular changes in the dynamics of both buy-side and sell-side business models and approaches to trading. Fragmentation has also transformed the order size/frequency disparity; the difference between average order size and average trade size has dramatically decreased while the frequency of trades has skyrocketed, resulting in a much more dynamic intraday size/volume profile with potential for greater velocity in pricing and thus market impact. In evaluating active equity managers, investors should consider their awareness and management of the forces at play in equity trading today, especially their understanding of market structure.
Many credit strategists have expressed frustration at the persistent steepness of investment grade credit curves in this cycle, but steep credit curves are a reflection of a constructive credit risk-taking environment. Having a constructive view on the market and a view that credit curves should flatten is a somewhat inconsistent stance.
At the September FOMC meeting, all eyes were once again on the Federal Reserve. The Fed’s announcement to keep rates unchanged, while retaining a bias to hike rates later on in the year, is likely the one that will grab headlines. But is it the most important thing investors need to focus on? We believe it’s not. In our view, the bigger news came in late August at the Fed’s Jackson Hole summit.
Right Back At It - Wasting no time after the US Labor Day lull, the loan market was essentially back to full speed this week as the new issue pipeline quickly filled and strong demand prevailed. The S&P/LSTA Leveraged Loan Index gained 0.24% and the average bid for loans rose 25 bps, to 94.75.
August Rush - Rather than settling into an end of summer respite as August often typifies, the loan market furthered its strong run of plentiful activity and healthy technicals through a set of predictable opportunistic and risk-on transactions. The Index returned 0.06%, while the average bid declined a slight three bps to 94.03.
Riding the Wave - Robust activity drove the U.S. loan market last week, and issuers expectedly sought to capitalise on these market dynamics with a slate of opportunistic deals. The index gained 0.13%, with the average bid for loans increasing three bps to 94.06.
While Europe likely cheered England's exit from the Euro Cup, there was little celebration when the British voted to exit the European Union. While Britain's actions will have minimal direct spillover to the U.S. economy, we believe a Fed rate hike is off the table for 2016.