We help banks, credit unions, and asset managers energize their portfolios and reduce volatility.
- Trade highly sought-after variable-rate government-guaranteed paper
- Offer alternative strategies for clients to capitalize on the SBA/USDA market
- Provide traditional fixed income financial services
from the desk of Joel Banes 6/14/2018
The Lower Wall Street Journal (LSWJ) Prime Rate rose .25 bps. Prime rate is now 5%, a rate that hasn’t been seen since September 2008. The low in the Prime Rate was 3.25% in December 2015 which was followed by seven consecutive rate hikes. The yield on the 10yr T-Note & 30yr T-Bond are currently 2.95% and 3.09% respectively. As such, there is only about a 74 bps pickup between the 1-yr and 30-yr Treasury. Believe it or not, SBA pool yields now compete with the yield on the 30yr Treasury Bond. There is one more Fed rate increase projected for this year and three projected for 2019. If these rate hikes materialize, the possibility of an inverted yield curve is real; yields will be higher on the short end, than in longer-term investments. For today, there are already floating rate, uncapped SBA pools that yield more than the 30yr Treasury.
One mitigating factor is that prepay speeds for seasoned SBA pools have picked up substantially. The primary increase has come since October 2017 when the SBA changed the amortization method on older pools to return embedded principal to investors at a faster pace. Newly originated SBA pools do not have embedded principal which makes new pools that much more attractive. Consult your representative for the most current information on prepayment speeds.