April 5, 2021
Fixed-Rate SBA DCPCs (SBAP) – April Auction This Week
- The April fixed-rate SBA DCPC auction this week should see strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC and the SBIC auctions in March priced at historically tight spreads.
- Supply in the secondary market for SBA fixed rate product has not kept up with demand; new issuance in the market from the auction should benefit liquidity in the SBA market.
- The current yield spread of 20 bps in new issue SBA DCPCs to Treasurys was unchanged last week. Spreads have tightened 20 bps month over month and have tightened 9 bps year to date.
- Spreads in seasoned DCPCs and SBICs are wider than new issues, but premium risk is higher in seasoned products driven by higher debenture rates on older loans.
March Fixed-Rate SBA DCPC Auction (SBAP 2021-20C 1 and SBAP 2021-25C 1)
- The March fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Debenture rates are at their highest levels since April 2020 and are 30 bps above the twelve-month average.
- Total issuance in the March auction of $354.5M declined $60.8M (-14.6%) from the prior month.
- The 25-year term represented 81.2% of total issuance in the March auction.
- Debenture rates to Treasury spreads tightened 10 bps month over month for the 25-year and 11 bps for the 20-year term (9 bps spread for the 25-year term and -2 bps for the 20-year term).
- Spreads are currently significantly tighter than the twelve-month average and are trading at the tightest spreads historically for both maturity terms.
Floating-Rate SBA 7(a) Pools
- 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
Vining Sparks IBG, LP