January 4, 2021
Fixed-Rate SBA DCPCs – January Auction This Week
- The January fixed-rate SBA DCPC auction this Thursday should see strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives. Pricing in the December auction resulted in historically tight spreads.
- Supply in the secondary market for DCPC product has not kept up with demand; new issuance in the market from the monthly auction this week should benefit SBAP liquidity.
- The current yield spread of 29 bps in new issue SBA DCPCs to Treasurys was unchanged last week. Spreads have tightened 11 bps month over month and have tightened 33 bps year-to-date.
- 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.
December Fixed-Rate SBA DCPC Auction (SBAP 2020-20L 1 and SBAP 2020-25L 1)
- The December fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
- Spreads tightened 10 and 11 bps month over month for 25-year and 20-year terms, respectively (27 bps yield spread for the 25-year term and 17 bps for the 20-year term).
- Spreads are currently significantly tighter than the twelve-month average and are trading at the tightest spreads historically for both maturity terms.
- Total issuance in the December auction of $354.1M increased $108.5M (+44.2%) from the prior month.
- The 25-year term represented 77.6% of total issuance in the December auction, while the 20-year term was 22.4%.
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