August 3, 2020
Fixed-Rate SBA DCPC SBAP Auction This Week
- The August fixed-rate SBA DCPC auction this Thursday is expected to draw strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Supply in the secondary market for DCPC product has not kept up with demand; new issuance in the market from the monthly auction should benefit SBAP liquidity.
- Current yield spreads in new-issue SBA DCPCs to Treasuries were unchanged last week at 58 bps. Spreads have tightened 2 bps over the last month and are 3 to 4 bps tighter than year-end and prior year spreads.
- 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.
July Fixed-Rate SBA DCPC Auction (SBAP 2020-20G 1 and SBAP 2020-25G 1)
- Borrowers are benefiting from low rates, locking in the lowest debenture rates in the 504 program’s history.
- Yield spreads continued the tightening trend in the July auction, tightening considerably over the last 3 months from the wide spreads in April. Spreads are now tighter than the twelve-month average for 20-year and 25-year maturities.
Floating-Rate 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.
PPP Scheduled to End August 8th; Additional Small Business Aid Likely in the Next Round of Stimulus
The Paycheck Protection Program (PPP) ends on August 8th. While further stimulus for small business is under consideration in Congress, additional PPP programs are expected to be smaller and more restrictive than the first two rounds of PPP.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP