August 6, 2018
SBA activity is expected to be focused on the DCPC auction Thursday, which includes a 20yr term. Investors have also 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 several weeks.
Fixed-Rate (DCPC and SBIC) Pools
- The DCPC auction this Thursday is expected to include only a 20yr term.
- Fixed rate SBA products, both SBICs and DCPCs, continue to attract considerable attention from traditional buyers of stable CMO structures and also of agency multifamily products. DCPC and SBIC yields and yield spreads versus Treasuries remain at the wide end of their ranges for the last several months.
- The 71bp spread for the twenty-year DCPC auction in July exceeded the yield difference versus Treasuries from every monthly auction result since February 2016. Yield spreads have increased from 35bps in March to 71bps in the July auction.
- Similar to the spread widening in the 20yr auction, the 10yr auction resulted in yields spreads widening to 46bps compared to the 12-month range of 22 to 37bps.
Floating-Rate 7(a) Pools
- 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.
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.
SBA Prepayment Speeds
Mixed prepayment results left overall CPRs for SBA pools above their year-to-date average and also above the average since the October procedural changes. Real-estate pools slowed by a greater amount than equipment loans sped up, and for the first time in several months overall speeds for real-estate pools trailed equipment-loan pools. For additional charts and SBA prepayment commentary, click on the link.
Dan Stimpson, CPA
Senior Vice President