May 3, 2021
Fixed-Rate SBA DCPCs (SBAP) – May Auction This Week
- The May fixed-rate SBA DCPC auction this week should see strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives.
- Supply in the secondary market for SBA fixed rate product has not kept up with demand; new issuance in the market from the auction should benefit liquidity in the SBA market.
- The DCPC auction in April and the semi-annual SBIC auction in March priced at historically tight spreads.
- The current yield spread of 11 bps in new issue SBA DCPCs to Treasurys tightened 4 bps last week. Spreads have tightened 9 bps month over month and have tightened 18 bps year to date.
- Spreads in seasoned DCPCs and SBICs are wider than new issues, but premium risk is higher in seasoned products driven by higher debenture rates on older loans.
April Fixed-Rate SBA DCPC Auction (SBAP 2021-20D 1 and SBAP 2021-25D 1)
- The April fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
- Debenture rates are at their highest levels since April 2020 and are 33 bps above the twelve-month average.
- Total issuance in the April auction of $442.4M increased $87.9M (+24.8%) from the prior month.
- The 25-year term represented 86.5% of total issuance in the April auction.
- Debenture rates to Treasury spreads tightened 7 bps month over month for the 25-year and 8 bps for the 20-year term (2 bps spread for the 25-year term and -10 bps for the 20-year term).
- Spreads are currently significantly tighter than the twelve-month average and are trading at the tightest spreads historically for both maturity terms.
Floating-Rate SBA 7(a) Pools
- 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
Vining Sparks IBG, LP