November 16, 2020
Fixed-Rate SBA DCPCs
- The November fixed-rate SBA DCPC auction drew strong investor interest as SBA DCPCs and SBICs offer superior convexity profiles to most residential MBS alternatives, while offering comparable yields and spreads.
- Supply in the secondary market for DCPC product has not kept up with demand; new issuance in the market from the monthly auction benefited SBAP liquidity.
- Current yield spreads in new-issue SBA DCPCs to Treasurys were unchanged last week holding at 41 bps. Spreads have tightened 7 bps over the last month and have tightened 21 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.
November Fixed-Rate SBA DCPC Auction (SBAP 2020-20K 1 and SBAP 2020-25K 1)
- The November fixed-rate SBA DCPC auction included 10-year, 20-year, and 25-year maturities.
- Spreads tightened 2 bps month over month for 25-year and 20-year terms, respectively (37 bps yield spread for the 25-year term and 28 bps for the 20-year term).
- Spreads are currently tighter than the twelve-month average and are trading at the tightest levels in over a year for all maturity terms.
- Total issuance in the November auction of $245.6M increased $115.0M (+88.1%) from the prior month, which was the lowest level of auction issuance on record.
- The 25-year term represented 76.7% of total issuance in the November auction, while the 20-year term was 18.8%.
Floating-Rate 7(a) Pools
- SBA 7(a) prepayment speeds and commentary for the month of November will be released later today. Prepayment speeds have declined this year to historically low prepayment levels; however, speeds ticked higher last month for both equipment and real estate 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