On Peter Renton's blog post Changes Today to the Lending Club Trading Platform on SocialLending.net, user @stilltrackin noted that discounted Notes seemed to be harder to find as of February 2012. After I started using my Chrome browser extension I added discounted Notes to my buying strategy. I hadn't been buying discounted Notes for around 6 months and noticed that they seemed to be a bit thin.
When I view Notes, I filter out Notes with principal less than $15 or more than $25, Notes from the same Loan and Notes with less than 16% Yield to Maturity. With those filters, in 1,300 of the most discounted Notes (22 pages at 60 each), I only found 42 that met that criteria and were marked up less than 3%. There seemed to be a pattern so I threw the values into a spreadsheet and came up with this graph, which shows Yield to Maturity on the Y-axis and the discount on the X-axis.
Remember that this is a selection of what I consider premium Notes (see the criteria I mentioned above). It is interesting that there are a handful of Notes right around par and then nothing until around 2%. It is possible that someone is rapidly snatching up everything under 2% markup.
Now let's look at the Notes from 14% to 16% Yield to Maturity. There are 59 Notes in the same 1,300 or so Notes that have this Yield to Maturity. In this range there is nothing below 1% available. The distribution looks very different than the 16%+ distribution. I stopped at 14% because the number of Notes starts getting larger the smaller Yield to Maturity you get.
If you stack the two graphs you can start to see a boundary of Discount for each Yield to Maturity. I think this is the balance between two Lending Club investment philosophies, Yield to Maturity vs Discount. 19% Y2M Notes seem to sell well at a markup of 2% or less because both types of investors are looking for them (has a low Discount and a high Yield to Maturity). It seems 15% is the low end for markups as high as 2%. I would need more data to be sure (note the three near-zero markup 18.5% Y2M Notes).
This will be one of the things I will start tracking and posting about. When I have more time, I'll delve more into the lower Yield to Maturity Notes.
What are your thoughts?
Update 03/13/2012 @ 12:17pm Central
So I pulled data from the top 1,200 discounted Notes with Yield to Maturity of 6%+. The data is in the graph above. There are a little over 600 Notes from unique Loans that have never been Late, over 6% Yield to Maturity and under 3% markup. The blank spots to the left of the graph probably indicate good markups for quick sales, as there is little competition in that area.
What conclusions do you draw from the chart above?