Announced M&A volumes of $19.2 billion declined by 49% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 10% below the 2Q12 weekly average level and 13% below the 3Q11 average weekly level.

Sandler O’Neill’s Weekly M&A Trends:

Equity markets pulled back modestly on lighter trading volume

• The S&P 500 declined by 0.4% in the week and the Russell 2000 growth index declined by 0.8% in the week. In 3Q12, the S&P 500 has risen by 7.2% while the Russell 2000 index has improved by 6.8%.
• Average daily U.S. equity trading volumes declined by 5.1% from the prior week. Thus far in 3Q12, volumes are averaging 13% below the 2Q12 weekly average and 32% below the 3Q11 average. Average daily U.S. volumes reflect the total number of shares traded on Tape A, Tape B, and Tape C in millions.
• Equity mutual funds experienced net outflows of $3.3 billion in the week according to ICI data (on a one week lag). Equity mutual funds have experienced $35.5 billion of net outflows thus far in 3Q12 after experiencing net outflows of $22 billion in 2Q12 and $80.7 billion of net outflows in 3Q11.
• Volatility, measured by the average CBOE VIX, declined by 8.2% to 14.1, and the DB currency VIX was essentially flat at 8.1.

Debt underwriting was again a highlight in the week while completed M&A volumes also improved

• Equity underwriting volumes of $15 billion declined by 61% from the prior week, though last week’s volumes were boosted by the Treasury’s $20 billion offering of AIG stock. Thus far in 3Q12, equity underwriting volumes are averaging 13% above both the 2Q12 weekly average level and the 3Q11 average weekly level. Positively, five IPO’s priced in the week with Trulia, Inc.’s $102 million offering highlighting the week, returning over 40% on its first day of trading.
• Corporate debt underwriting volumes of $90.2 billion declined 20% from last week’s elevated level. Thus far in 3Q12, corporate debt underwriting volumes are averaging 35% above the 2Q12 weekly average level and 89% above the 3Q11 weekly average level.
• Announced M&A volumes of $19.2 billion declined by 49% from the prior week. Thus far in 3Q12, announced M&A volumes are averaging 10% below the 2Q12 weekly average level and 13% below the 3Q11 average weekly level.
• Completed M&A volumes of $17.9 billion improved by 68% from the prior week. Thus far in 3Q12, completed M&A volumes are averaging 20% below the 2Q12 weekly average level and 5% below the 3Q11 average weekly level.

Credit spreads widened as volume slowed modestly

• The Merrill Lynch high yield corporate bond spread (Merrill Lynch High Yield Corporate Bond Index less the 10-year treasury) widened (deteriorated) by 13 bps in the week to 523 bps. After widening (deteriorating) by 62 bps in 2Q12, the spread has tightened (improved) by 88 bps thus far in 3Q12.
• The CDX investment grade index (IG18) widened (deteriorated) by 4 bps in the week to 87 bps. After widening (deteriorating) by 26 bps in 2Q12, the index has tightened (improved) by 25 bps in 3Q12 QTD.
• The Markit iTraxx 5-year SovX Western Europe Index, which tracks Western European sovereign debt CDS (cost of insuring against default), declined (improved) by 23% in the week, and has declined (improved) in fifteen of the prior sixteen weeks. While the index rose (deteriorated) by 5% in 2Q12, the index has declined (improved) 53% thus far in 3Q12.
• Daily average bond trading volumes declined by 4% from the prior week. In the week, average investment grade bond volumes declined by 3%, average high yield bond volumes declined by 3%, and average convertible bond volumes declined by 20%. 3Q12 total bond volumes are averaging 7% below the 2Q12 weekly average and 1% below the 3Q11 weekly average.
• The AAA ABX-HE rose by 0.1% in the week and the CMBX declined by 0.5% in the week.
• The trade-weighted U.S. Dollar Index (DXY) rose by 0.6% in the week and the Commodity Research Board Index (CRB) declined by 3.7%.
• The TED spread (3-month U.S. Treasuries vs. 3-month LIBOR), which is an indicator of perceived default risk, tightened (improved) by 2 bps in the week to 27 bps. The TED spread remains materially below the 464 bps reached during the peak of the 08-09′ credit crisis.

Disclosure: I do not have a position in any stocks mentioned in this article, do not have a plan to initiate a position within the next 72 hours.

Disclaimer:  The information, opinions, material, and any other content provided in this article is for informational purposes only and is not to be used or considered an offer or solicitation to buy or sell securities, investment products, financial instruments, or to participate in any particular investment strategy. The information, opinions, material, and any other content provided in this article does not constitute as a recommendation or as advice to buy or sell securities, investment products,  financial instruments, or to participate in any particular investment strategy.