SBA Update

Fixed-Rate SBA DCPCs (SBAP)

Investor interest in fixed-rate SBA DCPCs remains strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives.
The DCPC auction priced at historically tight spreads for much of 2021; however, spreads have widened approximately 90 bps since June 2021. Debenture rates increased and yield spreads widened month over month to their highest levels in over a year in the April SBA DCPC auction.
The current yield spread of 62 bps in new issue SBA DCPCs to Treasuries widened 4 bps last week. Spreads are 5 bps wider month over month and 35 bps wider year to date. Spreads are 37 bps wider than the 1-Yr average of 25 bps.

April Fixed-Rate SBA DCPC Auction (SBAP 2022-20D and SBAP 2022-25D)

The April fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
Debenture rates increased 75 bps to 3.50% (25yr) and 85 bps to 3.38% (20yr) in the auction. Debenture rates are 157 bps (25yr) and 163 bps (20yr) above their respective twelve-month average.
Total issuance of $624.9M increased $13.7M (2.2%) from the prior month. The 25-year represented 84.9% of total issuance in the auction.
Debenture rates to Treasury spreads widened 10 bps month over month for the 25-year term and 20 bps for the 20-year term (85 bps spread for the 25-year and 73 bps for the 20-year).
Spreads have widened approximately 90 bps from the historically tight levels in the June 2021 auction.
Spreads are wider than their respective twelve-month average (57 bps wider for the 25-year and 63 bps wider for the 20-year).

Floating-Rate SBA 7(a) Pools

March 2022 SBA Prepayment Speed Commentary

April 2022 Prepayment Speed Commentary on SBA 7(a) floating rate pools will be released later this week.
It is critically important to evaluate pools at a wide variety of speeds and using a prepayment vector. Our Performance Profile includes an analysis of your 7(a) pools layered against a historical prepayment vector. Please let your Representative know if you would like to run a Performance Profile.

Dan Stimpson, CPA

Senior Vice President, Investment Strategies

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