July 9, 2018
SBA activity during the holiday-shortened week was light as expected, but was focused on the DCPC auction last Thursday, which included 10yr and 20yr terms priced at the widest yield spreads in over a year. The DCPC auction also included a new 25yr term.
Floating-Rate 7(a) Pools
- Par handle pools continue to represent the focal point for the sector.
- Premium priced pools have seen increased investor activity the last several weeks after the Fed rate hike in June to the highest levels of activity since October of last year.
- Ten-year WAM equipment-loan pools should also 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.
Fixed-Rate (DCPC and SBIC) Pools
- 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 DCPC auction last Thursday included both 10yr and 20yr terms and also included a 25yr term.
- The 71bp spread for the twenty-year DCPC auction in June exceeded the yield difference versus Treasuries from every monthly auction result since August 2012. 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.
- The DCPC auction last week also included a new 25yr term. The size of the auction was limited to only $27.5 million but offers investors a spread pickup of 14bps over the 20yr term and a 3.68% debenture rate.
Government Guaranteed Loan Trading
- Government-guaranteed USDA agricultural loans traded to financial institutions. As has been the case for some time, supply and not demand limits loan trading volumes.
Dan Stimpson, CPA
Senior Vice President