Monday, December 16, 2013

The SBA and tintinnabulate

To ring; to tinkle.
From Latin tintinnabulum (bell), from tintinnare (to jingle)


It’s time to tintinnabulate.

Christmas is upon us and the New Year begins soon.

A whole new game with new rules starts at the beginning of the year with the Small Business Administration’s new Standard Operating Procedures 50-10-5(F).

SBA LIBOR Base Rate December 2013 = 3.17%
SBA Fixed Base Rate December 2013 = 5.39%

SBA 504 Loan Debenture Rate for December  

The debenture rate is only 3.36% but note rate is 3.44% and the effective yield is 5.458%

The bond market tintinnabulates as the yield curve gets steeper.

Last week the U.S. government sold $13 billion of 30-year Treasury bonds at a yield of 3.90%.   In November the 30 year Treasury bonds drew a yield of 3.81%  while in October it was 3.758%.   It was as low as 2.73% earlier this year. 

The slope of the yield curve—the difference between the yields on short- and long-term maturity bonds—has achieved some notoriety as a simple forecaster of economic growth.   The rule of thumb is that an inverted yield curve (short rates above long rates) indicates a recession in about a year while a flat curve indicates weak growth and a steep curve indicates strong growth.

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:
2001- 5.49
2002- 5.43
2003- ND
2004- ND
2005- ND
2006- 4.91
2007- 4.84
2008- 4.18
2009- 3.89
2010- 4.61
2011- 2.89
2012- 2.77
2013- 3.25

Wait a minute, why no numbers for 2003, 2004, and 2005?

One month after the 9/11 attacks, the Treasury 30 year bond is discontinued. When the Treasury mothballed the 30-year bond in 2001, experts speculated it was trying to drive down long-term interest rates, which had remained stubbornly high while the Federal Reserve was slashing short-term interest rates to revive the economy. When the Treasury discontinued the 30-year bond in 2001, its yield fell 35 basis points in one day. Why? A shrinking supply of the 30-year Treasury bond caused increased demand to drive rates down.

The December auction bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was at 2.35, versus a bid-to-cover ratio of 2.16 at the November sale.   This is still off from an average of 2.48 at the past 10 auctions.

What does this mean?

I don’t know.

Treasury prices have declined on expectations the Federal Reserve might move this week or early next year to begin scaling back its monthly bond purchases, pushing longer term yields higher. 

What about short term yields for variable rates?

Keep your eyes and ears open for this week’s Federal Reserve meeting on monetary policy.  

Last time the Fed met they anticipated that an “exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”

An EXCEPTIONALLY low range for the federal funds rate will be appropriate.

The tintinnabulation of Salvation Army bell ringers with their red kettles is one of the sounds of Christmas just like Jingle Bells.

The Salvation Army has been in the United States since 1879, and in 1891, Captain Joseph McFee (yes, Captain, this is an army after all) of San Francisco came up with the Christmas kettle concept.  The bell ringing season starts in November and runs through Christmas Eve. 

After five grueling days of non-stop bell ringing, the three contenders for the Salvation Army World Bell Ringing record agreed to jointly lay their bells down after 105 hours on December 7th.   Five days of non-stop bell ringing!  It only takes one shift to raise enough money to provide two nights of shelter and four warm meals for the men, women and children who enter their doors every day. 

That’s something to keep in mind when you hear a bell ringing by a Salvation Army red kettle.

I know this is corny but like Zuzu in It’s A Wonderful Life said: “Every time a bell rings an angel gets his wings.”

Merry Christmas!

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