Monday, January 11, 2016

The SBA and batten


1. verb: To fatten or to grow fat; to thrive and prosper at another's expense.
2. noun: A long strip of wood, metal, or plastic used for strengthening something.
3. verb: To fasten or secure using battens.

For 1: From Old Norse batna (to improve).
For 2, 3: From Old French batre (to beat), from Latin battuere (to beat).

The term is often heard in the idiom "to batten down the hatches" meaning to prepare for a difficult situation or an impending disaster. It is nautical in origin. Literally speaking, to batten down is to cover a ship's hatch (an opening in the deck) with a tarpaulin and strips of wood in preparation for an imminent storm.

No need to batten down the hatches.  Lenders and borrowers have batten themselves with SBA loans.  Over $5,356,360,000 in SBA 7(a) loans were approved in the last three months of 2015.  This was an increase over the same period a year ago.  For the fiscal year ending September 30th, 2015 SBA had approved $23,583,863,400 in loans- an all time record.

Keep in mind that the correlation coefficient between SBA 7(a) loan approvals and our economy's Gross Domestic Product is a statistically significant 0.86.

SBA LIBOR Base Rate January 2016 =3.42%
SBA Fixed Base Rate January 2016 = 5.36%
SBA 504 Loan Debenture Rate for December
The debenture rate is only 2.70% but note rate is 2.746% and the effective yield is 4.778%.

Batten down the hatches!  Interest rates are going up, right?

Actually they have been going down.  Since the Federal Reserve’s decision to raise interest rates last month for the first time in nearly a decade, longer term interest rates are actually lower.

After minutes from the Fed’s December 15th and 16th meeting were released, the 30 year Treasury bond yield dropped 6.4 basis points to 2.947%. 

The jobs report for December did not do much to longer term rates as the yield on the 30-year bond was up 0.6 basis point to 2.934%.

Here is a summary of net payroll employment and this week’s interesting little table of data:

December                        292,000
November                       252,000
October                           307,000
September                          142,000
August                                 136,000
July                                       245,000
June                                      245.000
May                                       260,000
April                                     223,000
March                                      85,000
February                             266,000
January                               239,000
2014     3,116,000
2013     2,074,000
2012     2,193,000
2011      2,103,000
2010     1,022,000
2009     -5,052,000
2008     -3,617,000
2007    1,115,000
2006     2,071,000
2005     2,484,000
2004     2,019,000

What does all this mean?

I don’t know.

For all of 2015, employment climbed by 2.65 million after a 3.1 million gain in 2014, for the best back-to-back years since 1998-99.

Does that mean the Fed is going raise rates again when they meet January 26th and 27th?

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

Last month the auction of $12.3 billion in 30-year Treasuries saw near-record demand by a group of buyers known as indirect bidders, which mainly consists of foreign central banks. Indirect bidders bought 63.9% of the auctioned securities, near the 66% record set in September.  The yield on the 30-year bond that day edged ended at 2.975%.

The yield curve is getting flatter.  That means the spread, or yield differential, between short- and long-term Treasuries has recently tightened. Short-term Treasury yields have risen in anticipation of a rate hike while long-term yields have fallen on declining inflation expectations.   The 30 year Treasury yield is at historic lows implying a lack of concern over escalating interest rates. 

If you battened yourself over the holidays or if you feel like you need to batten down the hatches with a full work week after the Christmas and New Year’s holidays we’ve got a three day weekend coming up.

According to the Federal Reserve, here are our holidays for 2016:

Birthday of Martin Luther King, Jr. January 18
Washington's Birthday February 15
Memorial Day May 30
*Independence Day July 4
Labor Day September 5
Columbus Day October 10
Veterans Day November 11
Thanksgiving Day November 24
Christmas Day December 26 

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