The SBA and oppugn

oppugn

uh-PYOON 

To call in question; to contradict; to dispute.

From Latin oppugnare (to fight or oppose), from ob- (against) + pugnare (to fight), from pugnus (fist).  

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TIP OF THE WEEK 

Nobody is oppugning SBA loans as SBA 7(a) loan approvals have more than DOUBLED on an annualized basis since 2009. 

With just over a month left in the SBA fiscal year, SBA 7(a) loan approvals have already set all time records.

This bodes well for the economy as SBA 7(a) loan production has been prescient. 

The correlation of SBA 7(a) loan approvals with our nation's economic performance appears to be quite strong.  Just for fun I calculated the correlation coefficient between SBA 7(a) loan volume and GDP for over six years using the Microsoft CORREL function.   It came out to a statistically significant 0.86.

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Indices:

PRIME RATE= 3.25%

SBA LIBOR Base Rate August 2015 = 3.19%

SBA Fixed Base Rate August 2015 = 5.13%

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SBA 504 Loan Debenture Rate for August

The debenture rate is only 2.82% but note rate is 2.87% and the effective yield is 4.909%.   

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AHEAD OF THE YIELD CURVE 

Can the Federal Reserve be oppugned?

Their next meeting on interest rates and monetary policy is in just a few weeks.

At their last meeting the Fed made a one-word change to its language on conditions that would justify a rate increase: It needs to see “some further improvement in the labor market,” adding the modifier “some,”

“SOME” further improvement?  The labor market has shown continued progress since the FOMC meeting, with U.S. firms adding 215,000 jobs in July compared with the year-to-date monthly average of 211,000.

The next report on jobs for the month of August comes out on Friday just before the long three day weekend.

Perhaps more attention should be paid to next week’s auction of the 30 year Treasury bond.

The yield differential or spread between long and short-term Treasury bonds has been on a steady decline since the beginning of July, telling an interesting story of the multiple forces shaping the market.

The trade is known as a flattening yield curve and it practically means that investors have been moving money over the last two months from short-term Treasury notes, such as the 2-year and the 5-year maturity, to long-term Treasurys, most notably the 30-year maturity.

As 30-year Treasury prices have been rising, the 30-year yield has lost over 45 basis points since July 10.

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.

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.

At last month’s auction, the government sold $16 billion in 30-year bonds at a high yield of only 2.880 percent.  This continues a declining yield trend at each of the 30 year Treasury auctions that has continued for the last few months.

The 30 year Treasury bond is currently at only 2.90%.

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OFF BASE

Nobody can oppugn the Federal Reserve on this.

A three day weekend approaches.  No only do they dictate short term interest rates, they more importantly arbitrate what days are holidays. 

According to the Federal Reserve, here are our remaining holidays for 2015:

Labor Day September 7

Columbus Day October 12

Veterans Day November 11

Thanksgiving Day November 26

Christmas Day December 25