The SBA and veteran

Veteran

vet-er-uh n, ve-truh n

a person who has had long service or experience in an occupation, office, or the like:

-a person who has served in a military force, especially one who has fought in a war:

-a Vietnam veteran.

-experienced through long service or practice; having served for a long period:

of, pertaining to, or characteristic of veterans.

  From Latin veterānus mature, experienced, equivalent to veter- (stem of vetus) old

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TIP OF THE WEEK 

U.S. military veterans can now save up to $69,062.50 on the SBA 7(a) loan guarantee fee.

SBA Policy Notice5000-1319 declares that the SBA guarantee fee on SBA 7(a) loans is now reduced by 50% for small businesses that are 51% or more owned and controlled by a veteran.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate November 2014 = 3.16%

SBA Fixed Base Rate November 2014 = 5.28%

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SBA 504 Loan Debenture Rate for October

The debenture rate is only 2.740% but note rate is 2.787% and the effective yield is 4.15%.

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AHEAD OF THE YIELD CURVE 

Veteran interest rate observers have noticed a flattening of the yield curve.

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.  More generally, a flat curve indicates weak growth and conversely, a steep curve indicates strong growth.

Since last month, the yield curve flattened sharply.  

Leading the charge is the 30 year Treasury bond.  At last month’s auction of the 30 year Treasury bond, it yielded 3.074 percent, the least since May of 2013.  The yield has languished around there since then, almost a month ago.

Is the bond market trying to tell us something about how the economy is doing?  Are these lower longer term rates a harbinger of slower economic growth ahead?

Actually, robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008, marking the sharpest turnaround in the government’s fiscal position in at least 46 years.  The shortfall of $483.4 billion in the 12 months ended Sept. 30 was 2.8 percent of the nation’s gross domestic product of $17.2 trillion over the same period.  The figure peaked at 10.1 percent of GDP in December 2009.  The Congressional Budget Office in August predicted the deficit will shrink further this fiscal year, to 2.6 percent of GDP, before rising to 2.9 percent in the presidential election year of 2016. Before the fourth quarter of 2008, the last time the deficit-to-GDP share reached 2.8 percent was in April 2005.  The reprieve is enabling the government to reduce the amount of debt sold in the short term.  The Treasury recently said its borrowing this quarter will decline to the least for the October-December period since 2007.

As a result, the government can borrow more cheaply than it has in the past. Yields on 30-year Treasuries have averaged 3.4 percent this year, compared with 6.09 percent over the past three decades. 

Futures markets suggested a path of interest-rate increases far below Federal Reserve officials’ own published projections. 

Eurodollar futures settle at a three- month lending rate that has averaged about 22 basis points more than the Fed's target over the past 10 years.

Here is a summary of what the market expects for Eurodollar futures based upon the pit-traded prices at the Chicago Mercantile Exchange:

DEC14- 0.25

DEC15- 0.83

DEC16- 1.81

DEC17- 2.50

DEC18- 2.87

DEC19- 3.06

DEC20- 3.35

What does all this mean?

I don’t know.

Eurodollar futures currently imply a federal funds rate of 2.28 percent at the end of 2017, well below the 3.75 percent median projection in Fed policy makers’ most recent forecast, published in September. The probability that the Fed’s benchmark rate will be below 1 percent by the end of 2017, derived from options on eurodollar futures contracts, is 17.3 percent, up from 11.4 percent six months ago.

Traders are betting the Federal Reserve won’t raise interest rates any time soon.

In the meantime, keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.

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OFF BASE

Veterans Day is November 11^th and it is a Federal holiday.

According to the Federal Reserve, here is our remaining holidays for 2014:

Veterans Day November 11
Thanksgiving Day November 27
Christmas Day December 25 

So why is it on the 11^th instead of a Monday?  Major hostilities of World War I were formally ended at the 11th hour of the 11th day of the 11th month of 1918, when the Armistice with Germany went into effect. It coincides with other holidays such as Armistice Day and Remembrance Day, which are celebrated in other parts of the world  

By the way, it is Veterans Day - a simple plural without a possessive apostrophe (Veteran's or Veterans').  The United States government has declared that the attributive (no apostrophe) rather than the possessive case is the official spelling.

To all our Veterans, THANK YOU.