September 11, 2017
Portfolio managers looked to add yield as they extended duration by adding DCPCs from the September auction. In addition, investors continued to add floating-rate SBAs to their portfolios last week with the majority of activity focused on seasoned equipment-backed pools.
Floating-Rate 7(a) Pools
- Portfolio managers have been focusing on seasoned floating-rate SBAs the past two weeks, with equipment-backed pools making up the majority of purchases. Depository portfolio managers invested in pools with 1-2 years of seasoning. Equipment-backed pools traded at prices 110 – 113, yielding from 1.70% to 1.90% at a 10 CPR. Equipment-backed pools offer a shorter cash flow profile than real-estate-backed pools.
Fixed-Rate (DCPC and SBIC) Pools
- Demand for fixed-rate SBAs continues to be strong, with the September DCPC auction offering much needed supply to investors. The September auction included a 10-year and a 20-year term. The 20-year term was just under $334 million, comprised of 443 loans, with a fixed coupon of 2.59%, 54 bps over Treasuries. The 10-year term was just under $12 million, comprised of 22 loans, with a fixed coupon of 1.98%, 35 bps over Treasuries.
Government Guaranteed Loan Trading
- Demand for fixed and floating-rate government guaranteed securities continues to facilitate an active level of loan trading. Loan originations continue to be strong, with 7(a) loan volume ahead of last year. Demand for new issue floating-rate pools should continue to support an elevated level of loan trading activity. In addition, loan activity supporting DCPC issuance continues to outpace last year, offering ample supply to support the monthly auctions.
Demand for fixed-rate SBAs continues to be strong, with the September DCPC auction offering much needed supply to investors. After multiple new issue floating-rate pools came to the market in recent weeks, investors focused on seasoned equipment-backed pool trading in the secondary.
Greg Roll, CFA
Senior Vice President