August 20, 2018
August SBA Prepayment Speeds
Prepayment speeds for equipment loan pools slowed and real estate pools sped up this month, each reversing their direction from July. Equipment loan pools fell below their six-month moving average and real estate pools ascended above theirs. Seasoning continues to overwhelm other pool characteristics and the path of speeds as pools season remains consistent with previous months. While the direction of the monthly aberration may fit well with narratives based on the recent course of the economy and interest rates, statistical variations and technical factors probably attributed more to the one-month changes than a flatter yield curve or economic growth trends and the moving averages provide a truer representation of prepayment trends. For additional charts and SBA prepayment commentary, click on the link.
Floating-Rate 7(a) Pools
- Investors have remained active in floating rate equipment pools offered at par and premium pricing as yields on SBA floating rate pools moved higher over the last month.
- Pricing levels on SBA floating pools with uncapped quarterly resets indexed to Prime offer attractive yield opportunities versus interest bearing cash and fed funds returns. Yields ranging from approximately 2.30% on par pools and 2.50% or higher on premium pools are currently available.
- Ten-year WAM equipment-loan pools should attract investor interest due to the cash flows from shorter-amortization schedules. Many equipment-loan pools offer favorable yields and margins using recent market prices and realistically vectored prepayment speeds.
Fixed-Rate (DCPC and SBIC) Pools
- The DCPC auction last Thursday included 20yr and 25yr terms.
- The 64bp spread for the twenty-year DCPC auction in August tightened 7bps compared to July, but yield spreads versus Treasuries remain at the wide end of their ranges for the last several auctions.
- Similar to the spread tightening in the 20yr auction, the 25yr auction resulted in yields spreads tightening 8bps to 77bps versus Treasuries.
- Pool issuance in the August auction for the 20yr and 25yr terms increased over the July auction.
Government Guaranteed Loan Trading
- Government-guaranteed USDA agricultural loans and SBA loans traded to financial institutions. As has been the case for some time, supply and not demand limits loan trading volumes.
Dan Stimpson, CPA
Senior Vice President