S&P 500 Securities Lending Spread Index reveals return to positive spreads; may indicate return to lender profit-seeking

The S&P 500 Securities Lending Spread Index ended February at slightly above zero, in a trend reversal that may indicate that lenders are now looking for returns.

At the end of February 2009, almost 90% of equities on the S&P 500 were being lent at a negative spread – where a lender pays a borrower to keep a security on loan – while less than a quarter of equities were in this position at the end of February 2010.

Negative spreads began to appear during the onset of the credit crunch, when lenders preferred to keep their securities on loan, with many struggling to deal with underlying collateral issues.

While at points in 2009 the spread index was positive, S&P put this down to extremely high positive spreads for shares in firms such as Citigroup, with the actual number of shares being lent for a positive return still low.

The S&P report also revealed that small-cap financials became more expensive to borrow, with the sub-index spread reaching 22bps at the end of February.