Large Bank Supervision Forum 2023

Market Technicals: Supply and Demand

New Issue Volume Decreased Given Heightened Volatility New issue driven by refinancing activity, while repricings were non-existent

Net Loan Demand Remained Mixed CLO issuance remained active, while retail flows were negative

-$20B -$10B $0B $10B $20B $30B $40B $50B $60B

$100B $150B $200B $250B $300B $350B $400B

$0B $50B

Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22

Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Repricing via amendment Resyndicated repricing New-issue volume (institional + pro-rata

CLO Volume U.S. Retail Fund Flows

Corporate Bond Issuance Remained Low IG supply and HY issuance modestly declined in Q4

Demand for Fixed-Rate Corporate Bonds Increased High yield demand increased notably from the prior quarter

$1000B

$60B

$800B

$40B

$600B

$20B

$400B

$0B

$200B

-$20B

$0B

-$40B

Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22

Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Investment Grade Flows High-Yield Fund Flows

Investment Grade Issuance High-Yield Issuance

Source: LCD, EPFR. Data as of December 31, 2022

For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.

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Price, Spread and Relative Value Trends

Loan Price Movement by Ratings Was Mixed in Q4 BB and B-rated loans traded higher, while CCCs continued to decline

Loan Coupons Have Increased Due to Rising Rates Now above 2020 levels; projected to increase further given rate expectations

100 105

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

7.66%

60 65 70 75 80 85 90 95

Mar-17 Nomimal Spread* Jun-17 Sep-17 Dec-17

Jun-18

Jun-19

Jun-20

Jun-21

Sep-21 Average Coupon Dec-21 Mar-22 Jun-22

Mar-18

Mar-19 Libor

Mar-20

Mar-21

Dec-16

Dec-18

Dec-19

Dec-20

Dec-22

Sep-18

Sep-19

Sep-20

Sep-22

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21 CCC

Mar-22

Dec-16

Sep-17

Dec-17

Sep-18

Dec-18

Sep-19

Dec-19

Sep-20

Dec-20

Sep-21

Dec-21

Sep-22

Dec-22

Coupon

Morningstar ® LSTA ® LL Index

BB

B

Loans Still Attractive Given Forward Yield Potential Loans are now wider and benefit from upward trajectory in coupons

New Issue Spreads Remain Wide Single-Bs tightened in Q4 but remain wide of 2021 levels

10% 12% 14%

0 100 200 300 400 500 600 700 800

0% 2% 4% 6% 8%

Jun-20

Jun-21

Jun-22

Mar-20

Mar-21

Mar-22

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Dec-19

Dec-20

Dec-21

Dec-22

Sep-19

Sep-20

Sep-21

Sep-22

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Dec-16

Sep-17

Dec-17

Sep-18

Dec-18

Sep-19

Dec-19

Sep-20

Dec-20

Sep-21

Dec-21

Sep-22

Dec-22

Senior Loans (Discount Yield to 3 Year Call) US HY (YTW): -190 bp US IG (YTW): -535 bp

US Loan Primary BB Spreads (bps)

US Loan Primary B Spreads (bps)

Source: LCD; Bloomberg. Data as of December 31, 2022. *The Index’s nominal spread calculation includes the benefit of base rate floors (where applicable). LCD did not report a meaningful sample size for BB primary new-issue spreads for some periods.

For financial professional or qualified institutional investor use only. Not for inspection by, distribution or quotation to the general public.

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