June 26, 2017
The combination of recent Fed actions and a host of new issuance yielded high levels of activity in floating-rate SBA pools last week. In addition, fixed-rate SBA investments also saw renewed interest, as recently issued DCPCs traded well in the secondary market. Loan trading activity was steady last week, as depositories focused on closing out the quarter strong.
Floating-Rate 7(a) Pools
- Activity was strong in both shorter WAM equipment-backed floating-rate pools and the longer real-estate-backed offerings. Depositories have been investing in equipment-backed pools offering shorter cash flow structures than the longer real-estate-backed pools. Recently issued equipment-backed pools traded at prices between 113 – 115, with yields north of 1.80% at a 10 CPR.
- The new issue real-estate-backed pools traded at prices below 108, yielding just north of 1.90% at a 10 CPR.
- Floating-rate pool coupons will reflect the increase in Prime on July 1st.
Fixed-Rate (DCPC and SBIC) Pools
- Demand for fixed-rate SBA securities increased last week with portfolio managers adding recently issued DCPCs. Although the June auction was met with tepid demand, the June paper was in high demand in the secondary market last week. The 20-year term was just under $339 million, with 429 debentures. The fixed coupon was 2.81%, 61 bps over Treasuries. Availability of DCPCs may be limited until the July auction late next week.
Government Guaranteed Loan Trading
- Loan trading activity was steady last week as we approach the end of the 2nd With the recent issuance of new floating-rate pools, demand for new loans is expected to mount. Heightened activity in 10-year pools over the past couple of months has led to a shortage of available 10-year loans for purchase in the market. Loan originations continue to outpace last year, with 7(a) balances 7.8% ahead of last year and DCPC balances almost 17.0% ahead of last year.
Fed actions, coupled with new issuance seemed to spur activity in floating-rate SBA pools. Floating-rate pool coupons will reflect the increase in Prime on July 1st. In addition, fixed-rate SBA investment activity was very high with investors picking up recently-issued DCPCs still trading in the secondary.
Greg Roll, CFA
Senior Vice President