Monday, May 11, 2015

The SBA and festinate

verb: To hurry or hasten.
adjective: Hurried or hasty.
From Latin festinare (to hasten).


The festinate release of yet another change to the SBA Standard Operating Procedures just came out.  SOP 50-10-5 (H) is retroactively effective May 1, 2015.

Amongst the changes is a clarification and simplification of the policies regarding debt refinancing for SBA 7(a) loans.  


SBA LIBOR Base Rate May 2015 = 3.18%
SBA Fixed Base Rate May 2015 = 5.11%
SBA 504 Loan Debenture Rate for April

The debenture rate is only 2.51% but note rate is 2.55% and the effective yield is 4.591%.   


Will the Federal Reserve festinate an increase in interest rates?

On Friday, the Bureau of Labor Statistics reported that in April employers added 223,000 jobs.

Total employment is now 3.0 million above the previous peak and up 11.7 million from the employment recession low.

The bond market took this as a mixed job report, sparking a small rally, driving Treasury prices higher and yields down.

The 30-year Treasury bond yield fell 3.1 basis points to 2.877%.  

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

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.

Last month’s auction of $13 billion in 30-year Treasury bonds saw weak demand.  Following the auction, the 30-year Treasury bond yield rose 3.9 basis points to a closing yield of 2.597%.  A few weeks later the 30-year bond yield jumped 10.2 basis points to 2.775% following the latest statement on monetary policy from the Federal Reserve.  Yields continued to climb as the U.S. Treasury market is highly correlated with the Eurozone bond market.  The sell off in Europe over concerns about Greece led Treasury yields to “rise in sympathy”.

Despite a modest improvement in jobs numbers, warning signs abound as reflected in the 30 year Treasury bond yield.  

The day after the 30 year Treasury bond auction, the Federal Reserve will report on capacity utilization.  Last month, the Federal Reserve reported that capacity utilization decreased 0.6 percentage point in March to 78.4 percent.  For the first quarter of 2015 as a whole, industrial production declined at an annual rate of 1.0 percent, the first quarterly decrease since the second quarter of 2009.  Weaker capacity utilization might be interpreted as a sign that the Federal Reserve’s 2% inflation target is still out of reach.

The Federal Reserve may not festinate after all.
The festinate arrival of summer for many is Memorial Day.  That’s in two short weeks!
According to the Federal Reserve, here are our remaining holidays for 2015:
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!

If that seems way too sudden, maybe we should all stop festinating.

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