March 14, 2022
Fixed-Rate SBIC Debentures – Semi-Annual Auction Expected To Price Today
- The SBIC semi-annual auction expected to price today should see strong investor interest. Preliminary pricing indications have spreads widening to almost double the average dating back to 2015.
- SBICs have a maturity date of 10 years and do not amortize. SBICs offer superior convexity profiles to most residential MBS alternatives and typically offer a yield pickup over agency bullets.
- Preliminary yield spreads in the March 2022 SBIC auction are expected to widen considerably to approximately 95 bps over the 10-year Treasury. The trust certificate rate is expected to increase 172 bps from 1.30% to 3.02%. Issuance in the March 2022 auction is projected to increase $717.50 million (+52.7%) to $2.077.85 billion.
Fixed-Rate SBA DCPCs (SBAP) – March Auction Last Week
- Debenture rates increased and yield spreads widened over 30 bps month over month in the fixed-rate SBA DCPC auction held last week.
- SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives.
- The DCPC auction priced at historically tight spreads for much of 2021; however, spreads have widened approximately 75 bps since June 2021.
- The current yield spread of 55 bps in new issue SBA DCPCs to Treasurys widened 15 bps last week. Spreads are 30 bps wider month over month and 28 bps wider year to date. Spreads are 34 bps wider than the 1-year average of 21bps.
March Fixed-Rate SBA DCPC Auction (SBAP 2022-20C and SBAP 2022-25C)
- The March fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Debenture rates rose over 30 bps to 2.75% (25yr) and 2.53% (20yr) in the auction. Debenture rates are 96 bps (25yr) and 92 bps (20yr) above their respective twelve-month average.
- Total issuance of $611.2M increased $87.9M (16.8%) from the prior month.
- The 25-year represented 84.75% of total issuance in the auction.
- Debenture rates to Treasury spreads widened 32 bps month over month for the 25-year term and 30 bps for the 20-year term (75 bps spread for the 25-year and 53 bps for the 20-year).
- Spreads have widened approximately 75 bps from the historically tight levels in the June 2021 auction.
- Spreads are wider than their respective twelve-month average (52 bps wider for the 25-year and 48 bps wider for the 20-year).
Floating-Rate SBA 7(a) Pools
- March 2022 Prepayment Speed Commentary on SBA 7(a) floating rate pools will be released later this week.
- 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