Another year gone
21 January 2025
With uncertain interest rates and a new incoming US President, 2024 held a lot of triggers for financial markets. Matt Chessum, director of securities finance at S&P Global Market Intelligence, takes a look back at the year and how securities lending fared
Image: Shutterstock
The year 2024 proved to be a remarkable period for securities lending, with revenues remaining robust and ranking as the fourth highest since the inception of S&P Global Market Intelligence’s data collection service in 2006. A combination of favourable market conditions, shifting investor strategies, and evolving economic dynamics contributed to this robust performance.
Equities
In 2024, the equities market experienced notable growth, driven by a positive sentiment among investors excited about the opportunities presented by artificial intelligence. The increased investor interest in equities was also attributed to a recalibration of interest rate expectations and a shift in focus from the current US administration to the incoming President-elect. This environment fostered a conducive atmosphere for securities lending, with equities generating US$8.7 billion in revenues.
The growth in market valuations led to heightened on-loan balances, which reached their highest levels of the year during the fourth quarter. Despite the increase in balances, both average fees and revenues declined across all markets leading to full-year equity revenues declining 11 per cent year-over-year (YoY). This difference can partly be attributed to a fall in specials activity (loans with a fee exceeding 500 basis points), as an additional US$927 million was generated from specials trading during 2023. Despite this difference, full-year specials revenues remained higher than any other year since 2010, apart from 2022 and 2023.
Exchange traded funds
Exchange traded funds (ETFs) emerged as one of the standout asset classes in 2024, capitalising on the prevailing market conditions. The combination of increased positioning around market events and a growing appetite for diversified investment options led to a surge in ETF lending activity. As investors sought to capitalise on market volatility and trends, the demand for ETFs soared, resulting in significant revenues from ETF lenders.
The performance of ETFs was particularly strong in the fourth quarter, where they played a pivotal role in driving overall securities lending revenues. The growing popularity of ETFs among institutional and retail investors alike contributed to their prominence in the securities lending landscape. As a result, ETFs not only enhanced the liquidity of the securities lending market but also provided investors with additional avenues for profit generation. During 2024, US$679 million was generated in securities lending revenues by this asset class, an increase of 7 per cent YoY. Asian ETFs really stood out, with revenues increasing 62 per cent YoY to US$20 million, and average fees growing by 21 per cent.
Government bonds
The government bond securities lending market concluded 2024 on a robust note, with significant growth in revenues. Throughout the year, government bond revenues exhibited a notable upward trend, particularly in the second half of 2024. December alone saw government bond revenues rise by 12 per cent YoY, totalling US$193 million for the month. This growth was indicative of the increasing demand for safe-haven assets amid rising uncertainty surrounding interest rate movements and fiscal policy.
The fourth quarter was particularly beneficial for government bonds, which recorded a remarkable 23 per cent YoY increase in revenues. Investors sought to hedge against market volatility and geopolitical risks, leading to a heightened demand for US Treasuries. The growing uncertainty regarding the future path of interest rates further spurred interest in government bonds, solidifying their position as a key asset class in the securities lending market. Average fees remained elevated throughout the year, with a small dip being seen during the summer months. Balances remained elevated with a 2024 average balance of US$1.19 trillion.
Corporate bonds
Corporate bonds also demonstrated resilience and strength throughout 2024. The corporate bond market experienced a positive shift as revenues increased by 6 per cent YoY in December, reaching US$86 million. This growth was attributed to favourable market conditions and a growing appetite for corporate debt among investors.
In the fourth quarter, corporate bonds excelled, marking the only positive YoY growth for any quarter in 2024, with revenues increasing by 7 per cent. The demand for corporate bonds was fuelled by rising equity market valuations and an increasing interest in fixed income assets. Investors were drawn to corporate bonds as they sought to diversify their portfolios and take advantage of the favourable yield environment.
Overall, the performance of corporate bonds throughout 2024 highlighted their importance in the securities lending landscape, as they provided investors with opportunities for enhanced returns and risk management. Despite YoY revenues declining 13 per cent to US$976 million, following one of their strongest years ever recorded for the asset class in 2023, corporate bonds still performed very well when compared to previous years.
Conclusion
In summary, 2024 was a year of robust performance for securities lending, with revenues reflecting the fourth highest levels since data collection began. The strong performance of ETFs, government bonds, and corporate bonds contributed significantly to this success. As market dynamics evolved and investor strategies shifted, the securities lending market proved resilient, adapting to changing conditions and providing ample opportunities for participants. The outlook for 2025 remains optimistic, with continued momentum expected across these key asset classes.
Equities
In 2024, the equities market experienced notable growth, driven by a positive sentiment among investors excited about the opportunities presented by artificial intelligence. The increased investor interest in equities was also attributed to a recalibration of interest rate expectations and a shift in focus from the current US administration to the incoming President-elect. This environment fostered a conducive atmosphere for securities lending, with equities generating US$8.7 billion in revenues.
The growth in market valuations led to heightened on-loan balances, which reached their highest levels of the year during the fourth quarter. Despite the increase in balances, both average fees and revenues declined across all markets leading to full-year equity revenues declining 11 per cent year-over-year (YoY). This difference can partly be attributed to a fall in specials activity (loans with a fee exceeding 500 basis points), as an additional US$927 million was generated from specials trading during 2023. Despite this difference, full-year specials revenues remained higher than any other year since 2010, apart from 2022 and 2023.
Exchange traded funds
Exchange traded funds (ETFs) emerged as one of the standout asset classes in 2024, capitalising on the prevailing market conditions. The combination of increased positioning around market events and a growing appetite for diversified investment options led to a surge in ETF lending activity. As investors sought to capitalise on market volatility and trends, the demand for ETFs soared, resulting in significant revenues from ETF lenders.
The performance of ETFs was particularly strong in the fourth quarter, where they played a pivotal role in driving overall securities lending revenues. The growing popularity of ETFs among institutional and retail investors alike contributed to their prominence in the securities lending landscape. As a result, ETFs not only enhanced the liquidity of the securities lending market but also provided investors with additional avenues for profit generation. During 2024, US$679 million was generated in securities lending revenues by this asset class, an increase of 7 per cent YoY. Asian ETFs really stood out, with revenues increasing 62 per cent YoY to US$20 million, and average fees growing by 21 per cent.
Government bonds
The government bond securities lending market concluded 2024 on a robust note, with significant growth in revenues. Throughout the year, government bond revenues exhibited a notable upward trend, particularly in the second half of 2024. December alone saw government bond revenues rise by 12 per cent YoY, totalling US$193 million for the month. This growth was indicative of the increasing demand for safe-haven assets amid rising uncertainty surrounding interest rate movements and fiscal policy.
The fourth quarter was particularly beneficial for government bonds, which recorded a remarkable 23 per cent YoY increase in revenues. Investors sought to hedge against market volatility and geopolitical risks, leading to a heightened demand for US Treasuries. The growing uncertainty regarding the future path of interest rates further spurred interest in government bonds, solidifying their position as a key asset class in the securities lending market. Average fees remained elevated throughout the year, with a small dip being seen during the summer months. Balances remained elevated with a 2024 average balance of US$1.19 trillion.
Corporate bonds
Corporate bonds also demonstrated resilience and strength throughout 2024. The corporate bond market experienced a positive shift as revenues increased by 6 per cent YoY in December, reaching US$86 million. This growth was attributed to favourable market conditions and a growing appetite for corporate debt among investors.
In the fourth quarter, corporate bonds excelled, marking the only positive YoY growth for any quarter in 2024, with revenues increasing by 7 per cent. The demand for corporate bonds was fuelled by rising equity market valuations and an increasing interest in fixed income assets. Investors were drawn to corporate bonds as they sought to diversify their portfolios and take advantage of the favourable yield environment.
Overall, the performance of corporate bonds throughout 2024 highlighted their importance in the securities lending landscape, as they provided investors with opportunities for enhanced returns and risk management. Despite YoY revenues declining 13 per cent to US$976 million, following one of their strongest years ever recorded for the asset class in 2023, corporate bonds still performed very well when compared to previous years.
Conclusion
In summary, 2024 was a year of robust performance for securities lending, with revenues reflecting the fourth highest levels since data collection began. The strong performance of ETFs, government bonds, and corporate bonds contributed significantly to this success. As market dynamics evolved and investor strategies shifted, the securities lending market proved resilient, adapting to changing conditions and providing ample opportunities for participants. The outlook for 2025 remains optimistic, with continued momentum expected across these key asset classes.
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