The SBA and PROdrome

 prodrome

PROH-drohm

An early symptom that indicates the onset of a disease or an episode of something such as a migraine.

From Latin prodromus, from Greek prodromos, from pro- (before) + dromos (running)

 

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TIP OF THE WEEK

 

A prodrome with the new version of the SBA Standard Operating Procedures.

 

SBA had previously indicated that it expected to release the SOP revision in November with a mid-January 2023 effective date.

 

SBA now intends to defer issuance of the SOP revision until two pending Proposed Rules are finalized.

 

This will allow SBA to further revise the SOP to incorporate any changes to program requirements made by the Final Rules.

 

This SOP is a propaedeutic prolusion for upcoming changes.

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Indices:

PRIME RATE= 7.50%

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SBA 504 Loan Debenture Rate for December

 

For 20 year debentures, the debenture rate is only 4.56% but note rate is 4.63% and the effective yield is 6.037%.

For 25 year debentures, the debenture rate is only 4.714% but note rate is 4.769% and the effective yield is 6.114%.

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AHEAD OF THE YIELD CURVE

 

As prognosticated, the Federal Reserve’s Fed Open Market Committee raised the fed funds rate target by another 50 basis points to 4.25-4.50 percent.

 

That means interest rates will keep going up, right?

 

The protervity over increasing interest rates is profluent proditomania.

 

At last week's auction of 30 year treasury bonds, rates actually dropped by roughly 1/2 percent.

 

The high yield of 3.513 percent compares with 4.080 percent in November's auction.

 

Here is what the 30 year Treasury bond has been doing and this week’s interesting little table:

2010- 4.61

2011- 2.89

2012- 2.77

2013- 3.25

2014- 3.97

2015- 2.91

2016- 2.32

2017- 3.16

2018- 3.13

2019- 2.594

2020- 1.216

2021- 1.88

2022- 2.375

 

So what does all this mean?

 

I don’t know.

 

Demand was soft for the reopening of November's 30-year bond, at a 2.25 bid to cover which is the lowest in a full year for this issue and down from 2.42 last month.

 

The drop in yield reflects the month-long easing of inflation risk.

 

More procellous promulgations on the yield curve inverting is profligate.

 

An inversion of the 3 month treasury bill and 10 year treasury note began in late October and became more pronounced in mid-November.   It is now at roughly -90 basis points with the three month at roughly 4.34% and the ten year at 3.52%.

 

That makes this one of the deepest inversions going back to 1982.

 

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, and yield curve inversions have preceded each of the last eight recessions (as defined by the NBER).

 

One measure of slope, the spread between 10-year Treasury bonds and 3-month Treasury bills, bears out this relation, particularly when real GDP growth is lagged a year to line up growth with the spread that predicts it.

 

The Federal Reserve Bank of Cleveland uses past values of the slope of the yield curve and GDP growth to provide predictions of future GDP growth and the probability that the economy will fall into a recession over the next year.

 

Right now they are saying the probability of a recession in 1 year is less than 50/50 at 41.8%.   That's up from 26.5% back in October.

 

Procacity over the slope of the yield curve can be prosaic.

 

 

 

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OFF BASE

 

With Christmas December 25th being a Sunday, Federal Reserve Banks will be closed on Monday December 26th.

 

That will allow us all to observe Boxing Day.

 

Boxing Day originated as a holiday the day after Christmas to give gifts to the poor

 

One idea is that December 26 was the day centuries ago when lords of the manor and aristocrats typically distributed “Christmas boxes” often filled with small gifts, money and leftovers from Christmas dinner to their household servants and employees, who were required to work on December 25, in recognition of good service throughout the year. These boxes were, in essence, holiday bonuses.