August 31, 2020
Fixed-Rate SBA DCPCs
- Investor demand in SBA DCPCs and SBICs remains high as these products offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Current yield spreads in new-issue SBA DCPCs to Treasurys reversed their recent tightening trend widening 3 bps last week to 43 bps. Spreads have tightened 15 bps over the last month and have tightened 19 bps YTD.
- 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.
August Fixed-Rate SBA DCPC Auction (SBAP 2020-20H 1 and SBAP 2020-25H 1)
- The August fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
- Total issuance in the monthly auction of $374.8M declined $22.5M (-5.7%) from the prior month. The 25-year term represented 72.8% of total issuance and the 20-year term represented 27.2% of total issuance.
- Spreads were 1 bp tighter to unchanged month over month for 25-year and 20-year terms, respectively (50 bps yield spread for the 25-year term and 39 bps for the 20-year term).
Fixed-Rate SBIC Debentures
- The SBIC auction is expected to price in mid to late September. SBIC debentures are issued semi-annually in March and September.
- The SBIC debenture rate is set based off of a market-driven premium to 10-year swap rates.
- Yield spreads have tightened considerably over the last 5 months from the historically wide spreads in the March SBIC auction, which priced at a historically wide spread of 131bps over the 10-year Treasury. Initial pricing indications are expected to be in line with the long-term average spread of 53bps or tighter.
- SBIC auction history is included below.
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.
Dan Stimpson, CPA
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP