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 9/17/2018
The fixed-income drought continues, but for how long? Recent weeks have demonstrated a slow pickup in buying activity.
Prime Rate is expected to go up another 25 basis points in September. This would be the eighth consecutive increase since December 2015 - moving Prime Rate from 3.25% to 5.25%. In the same time frame, the 10-year treasury yield has moved from 2.29% to 3.0%, for a 71 basis point increase. After considering premium risk, projected SBA yields can provide a yield advantage over longer-term fixed-rate investments as well as shortening the duration of one’s investment portfolio.
With Prime Rate steadily moving up and longer-term rates up only marginally, current SBA borrowers who have the ability to refinance with a conventional loan now have the proper motivation to do so. Those same borrowers, however, when they secured their SBA loan, were subject to a “credit-elsewhere-test” where the SBA lender had to determine and certify that the prospective borrower wasn’t able to secure acceptable conventional financing. Not all current SBA borrowers will qualify for conventional refinancing or find refinanced conventional loan terms long enough to meet their needs. This fact tends to reduce the occurrence of refinancing activity. Even so, higher SBA yields resulting from the rise in Prime Rate will be mitigated to some extent by refinancing activity.
All said, investors could be compensated nicely for staying short.
Those are my thoughts. Always happy to discuss. JOEL BANES (901) 261-5950