November 2, 2020
Fixed-Rate SBA DCPC SBAP Auction This Week
- The November fixed-rate SBA DCPC auction this Thursday is expected to draw 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 should benefit SBAP liquidity.
- Current yield spreads in new-issue SBA DCPCs to Treasurys tightened 7 bps last week to 45 bps. Spreads have tightened 9 bps over the last month and have tightened 17 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.
October Fixed-Rate SBA DCPC Auction (SBAP 2020-20J 1 and SBAP 2020-25J 1)
- The October fixed-rate SBA DCPC auction included 20-year and 25-year maturities.
- Spreads tightened 5 and 4 bps month over month for 25-year and 20-year terms, respectively (39 bps yield spread for the 25-year term and 30 bps for the 20-year term). Spreads are currently tighter than the twelve-month average for 20-year and 25-year maturities.
- Historically low total issuance in the October auction of $130.5M fell $1.154B (-89.8%) from the prior month and was the lowest level of auction issuance on record.
Floating-Rate 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