Monday, January 5, 2015

The SBA and serendipity



Luck that takes the form of finding valuable or pleasant things that are not looked for

Coined by novelist Horace Walpole based on the fairy tale The Three Princes of Serendip. The Princes were supposedly making these happy discoveries they were not looking for.

Serendipity comes with SBA 7(a) loans.

The IRS has issued a new Form 4506-T and all SBA 7(a) and 504 related requests for IRS tax transcripts must be submitted to IRS Service Centers using the new IRS Form 4506-T (Rev. August 2014).


SBA LIBOR Base Rate December 2014 = 3.16%
SBA Fixed Base Rate December 2014 = 5.19%
________________________________________SBA 504 Loan Debenture Rate for December     

The debenture rate is only 2.70% but note rate is 2.74% and the effective yield is 4.782%.       


Serendipitously, the yield curve has flattened.

What a minute, how can a flatter yield curve be considered a good thing?  Doesn’t a flatter yield curve mean things will actually slow down?

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.

The difference between yields on two-year notes and 30-year bonds, is at 207 basis points. It flattened to 201 basis points Dec. 23, the least since 2009.

The yield on the 30-year bond ended the year at only 2.74 percent.  It was at 3.97 percent in January of 2014.

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.  

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
2014- 3.97

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.

What does all this mean?

I don’t know.

Keep your eyes and ears open for this week’s auction of 30 year Treasury bonds.

Last month’s auction of $13 billion in 30-year bonds yielded only 2.86 percent.

In its final policy statement of the year, the Fed used a new word — "patient" — to basically let the market know that it isn't in a rush to hike short-term rates.

This distinct flattening of the long end of the yield curve implies investors are rethinking the timing of Federal Reserve interest-rate hikes.

Now isn’t that serendipitous?


Happy New Year!
If the prospect of a full work week after the Christmas and New Year’s holidays seems daunting, hang in there.  We’ve got a three day weekend coming up.
According to the Federal Reserve, here are our holidays for 2015:

Birthday of Martin Luther King, Jr. January 19
Washington's Birthday February 16
Memorial Day May 25
*Independence Day July 4
Labor Day September 7
Columbus Day October 12
Veterans Day November 11
Thanksgiving Day November 26
Christmas Day December 25 

*Independence Day this year falls on a Saturday – so the Board of Governors is closed on July 3, 2015 and bankers get a three day weekend!

Talk about serendipity!

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