In order to provide subscribers with a useful gauge for secondary loan market volatility, LCD is introducing the Loan Volatility Metric (LVM).
Equity market players have long relied on the VIX to gauge volatility in the stock market. Since the VIX relies on option prices, a similar trend-line cannot be applied to the loan asset class. Consulting with numerous managers, LCD has developed the LVM to gauge volatility in the secondary loan market based on how the prices of individual loans in the S&P/LSTA Index move relative to their recent price range.
Specifically, the LVM shows the percentage of loans that move more than the sum of the 100-day moving average of price changes and one standard deviation of those changes. To smooth the curve, we run a lagging-10-day average. The following chart (which is also attached) shows the LVM applied to the loan market since June 2007, with spikes in volatility annotated to provide historical context.
The red line shows the average LVM over the duration of the chart. The blue shaded chart within the chart provides a closer look at the most recent trend. We will include an LVM chart in our LCD Loan Index daily returns story each day. We appreciate any feedback.
For questions on the LVM or any LCD data or analysis contact Rob Polenberg: 212 438-2724
For loan market news and analysis check out www.leveragedloan.com, a free site powered by S&P Capital IQ LCD to promote the asset class.