January 10, 2022
Fixed-Rate SBA DCPCs (SBAP)
- Investor interest in the fixed-rate SBA DCPC auction last week remained strong as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. The DCPC auction has priced at historically tight spreads for much of 2021; however, spreads have widened over 30 bps since June 2021.
- Issuance has trended higher from the lows in October 2020; however, auction issuance declined 10.5% month over month in the January auction.
- The current yield spread of 28 bps in new issue SBA DCPCs to Treasurys widened 1bp last week. Spreads are 3 bps wider month over month and year over year.
- 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.
January Fixed-Rate SBA DCPC Auction (SBAP 2022-20A and SBAP 2022-25A)
- The January fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Debenture rates rose 19 bps to 2.04% (25yr) and 1.84% (20yr) in the auction. Debenture rates are 45 bps (25yr) and 41 bps (20yr) above their respective twelve-month average.
- Total issuance of $451.01M declined $53.1M (10.5%) from the prior month.
- The 25-year represented 83.5% of total issuance in the auction.
- Debenture rates to Treasury spreads tightened 6 bps month over month for the 25-year and 20-year terms (31 bps spread for the 25-year and 11 bps for the 20-year). Spreads have widened over 30 bps from the historically tight levels in the June 2021 auction.
- Spreads are wider than their respective twelve-month average (15 bps wider for the 25-year and 11 bps wider for the 20-year).
Floating-Rate SBA 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