May 8, 2017
Activity in the SBA sector cooled off a bit last week despite ongoing strong demand for floating-rate structures. Without an influx of new pools, supply became a limiting factor. As anticipation waned for most of the balance of the bond market with the FOMC announcement and important economic releases behind, investors and traders still must anticipate pending action in the fixed-rate SBA products as the monthly DCPC auction is not until Thursday and secondary supply is low.
Floating-Rate 7(a) Pools
- Activity gravitated toward some of the higher yielding, higher premium pools last week. Some pools offered in the 117 price range yield over 2% at a 10CPR even if short term rates remain where they are and speeds continue to run well below this pace.
- Some slightly seasoned ten-year bonds were offered in the secondary market, augmenting the limited supply of new issue pools.
- Few new-issue TBA pools have shown up so for this month, and the calendar suggests this week or early next week for any new May issuance availability that may occur.
- Prepayment speeds will be reported next week. Very slight acceleration is expected.
Fixed-Rate (DCPC and SBIC) Pools
- Activity in fixed-rate SBA securities was limited last week. This week’s DCPC auction and the typical secondary activity that occurs with the monthly sale should result in a much greater volume of trades. Both a ten- and twenty-year term will be auctioned this month.
Government Guaranteed Loan Trading
- Loan trading activity last week included several transaction in government-guaranteed USDA loans, most of which traded close to a par price. Meanwhile, demand for floating-rate pools continued to support strong pricing levels for the flow of 7(a) SBA loans.
Loan trading activity represnted a larger-than-usual fraction of activity last week as securty activity waned in part due due to tight supply for floating-rate pools. The DCPC auction should push security activity back to the forefront this week, as would any new issue pool announcements.
Director of Investment Product Strategies