• Declining returns after stellar Q2
• 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.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.