June 18, 2018
The Federal Reserve raised the Fed Funds Target Rate 25bps last week and two additional rate hikes are projected by the Fed this year, which should continue to drive demand in floating-rate SBAs. The day after the Fed raised rates, SBA 7(a) pool factors showed that prepayments increased as well.
SBA Prepayment Speeds
SBA 7(a) prepayments increased in both equipment-loan and real-estate pools to the highest CPR posted since the SBA changed its cashflow methodology last October, more than erasing last month’s decline. While day count by itself should have pushed speeds higher, seasonal factors and cyclical influences also impacted last month’s prepayment activity. Speeds increased across almost all vintages for both real-estate and equipment-loan pools. For additional charts and SBA prepayment commentary, please click here.
Floating-Rate 7(a) Pools
- Par handle pools continue to represent the focal point for the sector; however, premium priced pools saw increased investor activity last week.
- 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
- The 63bp spread for the June twenty-year DCPC auction exceeded the yield difference versus Treasuries from every monthly auction result since February 2016.
- DCPC and SBIC yields and yield spreads versus Treasuries remain at the wide end of their ranges for the last several months.
Dan Stimpson, CPA
Senior Vice President