August 7, 2017
Floating- and fixed-rate SBA markets fell between periods of active issuance last week, with secondary trading providing a surprising level of activity given the lack of issuance. Two-way activity in DCPCs and also in equipment-loan-backed SBA pools comprised most of the activity. Some of the secondary activity in DCPCs last week consisted of portfolio managers re-positioning in front of this week’s auction.
Floating-Rate 7(a) Pools
- A small variety of equipment loan pools, mostly relatively recently issued, went out for bid last week and met robust demand.
- The desire for diversification of vintages and to disperse premiums over par prices over higher loan counts drove some of the secondary action, both buying and selling
- New issuance from July found portfolio homes very quickly and secondary pools last week did as well, demonstrating the very strong demand for floaters in general and SBA floaters specifically.
Fixed-Rate (DCPC and SBIC) Pools
- Some combination of positioning in front of this week’s DCPC auction and a desire to book profits seemed to induce more trading in DCPCs last week than typically occurs in non-auction weeks.
- Most of the activity last week occurred in less than two-year old DCPC issues.
- Few bonds stayed in inventory long, with portfolio managers demonstrating strong demand for the product last week.
- This week’s DCPC auction features the twenty-year maturity only. The July twenty-year DCPC auction came at a spread to Treasuries of 60bp.
Government Guaranteed Loan Trading
- Loan trading activity continues to be robust for 7(a) product with YTD origination volumes continuing to outpace last year’s totals. Demand for new-issue floating-rate pools should continue to support an elevated level of loan trading activity. In particular, ten-year equipment loans continue to be in high demand, as the shorter new-issue pools have desirable cash flow structure for many depository investors.
Activity levels last week demonstrated continued investor focus on the SBA sector. Oftentimes, a week without auctions or significant pool issuance provides little in the way of activity worth reporting. This week the DCPC auction will augment ongoing portfolio adjustments.
Director of Investment Product Strategies