August 28, 2017
Portfolio managers were very active adding new issue floating-rate SBAs last week. Investors focused on a handful of new issue real-estate-backed paper that came to the market. Once the new issue paper was gone, investors returned their focus to seasoned floating-rate pools and a limited number of fixed-rate debentures trading in the secondary.
Floating-Rate 7(a) Pools
- Investors were very receptive to the new issue floating-rate SBAs that came to market last week. Available for investment were a variety of real-estate-backed structures priced from 111 – 118, yielding 1.90% to north of 2.10% at a 10 CPR.
- In addition to the new issue activity, depositories have been investing in seasoned equipment-backed pools offering shorter cash flow structures than the longer real-estate-backed pools. Equipment-backed pools traded at prices 110 – 113, yielding from 1.70% to 1.90% at a 10 CPR.
- Premium adverse investors continue to look to par handle SBA pools to mitigate interest rate risk exposure to rising rates. Par handle SBA pools add asset sensitivity to depository balance sheets without taking on premium risk. Current par handle pools trade slightly above par, offering yields just shy of 1.60% at a 10 CPR.
Fixed-Rate (DCPC and SBIC) Pools
- Supply of fixed-rate SBA securities was once again limited last week, as investors were only able to pick up odd-lot pieces traded in the secondary. Investors are currently looking to the September DCPC auction next week. The September auction will include a 10-year and a 20-year term. Last month the 20-year term was just under $357 million, comprised of 457 loans, with a fixed coupon of 2.75%, 53 bps over Treasuries.
Government Guaranteed Loan Trading
- Demand for new issue floating-rate pools should continue to support an elevated level of loan trading activity. Loan originations continue to be strong, with 7(a) volume 7.5% ahead of last year and DCPC volume outpacing last year by 11.3%.
Investors were very receptive to the new issue floating-rate SBAs that came to market last week and continue to add seasoned floating-rate paper when available. Fixed-rate SBA investors are looking to the September DCPC auction next week to satisfy current demand.
Greg Roll, CFA
Senior Vice President