June 10, 2019
Issuance was virtually flat and spreads widened in the June fixed-rate DCPC auction last Thursday compared to the May auction. SBA 7(a) prepayment speeds for June will be available later this week.
Fixed-Rate DCPC Pools
Fixed-rate SBA DCPC pools and SBIC debentures remain attractive as they offer superior convexity profiles to most residential MBS alternatives. Portfolio managers are considering strategies to extend duration and call structures to protect against falling rates.
- The June fixed-rate DCPC auction included 20- and 25-year maturities.
- Issuance in the June auction was $9.3M more than in May.
- Issuance for the 25-year term totaled $146.5M in June, while the 20-year term was $166.6M.
- Yield spreads versus Treasurys widened 3 bps on the 25-year term and 5 bps on the 20-year term.
- Yield spreads are below the twelve-month average for the 20- and 25-year terms; but have widened out from lows seen in the last auction.
Floating-Rate 7(a) Pools
- SBA floating-rate pools traded to financial institutions last week, but limited availability of supply has resulted in light secondary inventory levels, which has impacted activity recently.
- SBA prepayment speeds for SBA 7(a) pools will be available later this week.
- It is critically important to evaluate pools at a wide variety of speeds and also 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.
Kevin A. Smith, CFA
SVP, Director Investment Product Strategies
Vining Sparks IBG, LP