propound
pro·pound
to offer for discussion or consideration
from Latin proponere to display, propound, from pro-
before + ponere to put, place
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TIP OF THE WEEK
The new SOP propounds that the liquidity of small
business owners does not matter anymore.
It is now promulgated that lenders are not required to
consider the personal resources of owners of the Applicant, and SBA will not
evaluate the personal liquidity of owners.
SBA propines that personal resources from owners enhance
SBA’s ability to mitigate loan losses to the taxpayer due to the personal
guaranty required of all owners of the small business Applicant.
This is reflected in the new SBA Standard Operating
Procedure 50-10-7 effective August 1, 2023.
The old SOP provision that a determination that some or
all of the loan is not available from the liquidity of owners has been deleted.
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Indices:
PRIME RATE= 8.25%
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SBA 504 Loan Debenture Rate for May
For 20 year debentures, the debenture rate is only 4.60%
but note rate is 4.669% and the effective yield is 6.079%.
For 25 year debentures, the debenture rate is only 4.62%
but note rate is 4.67% and the effective yield is 6.026%.
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AHEAD OF THE YIELD CURVE
Propounding that the slope of the yield curve—the
difference between the yields on short- and long-term maturity bonds—is
prospicient may be profligate prodition.
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.
One of the recessions predicted by the yield curve was
the most recent one: The yield curve inverted in May 2019, almost a year before
the most recent recession started in March 2020.
The spread between 90 day treasury bills and the 10 year
treasury bond turned negative in October of 2022.
It has since remained negative with one of the deepest
inversions ever peaking at a minus 1.89 on May 4th. Driving this inversion is the long end of
the curve.
At last week’s auction of 30 year treasury bonds, the
high yield was awarded at 3.741 percent compared with 3.661 percent last month
and 3.877 percent two months ago.
The auction amount rose to $21 billion from $18 billion
last month. The increase contrasted with smaller offering sizes for shorter
term bills with higher rates.
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
2023- 3.741
So what does all this mean?
I don’t know.
The extreme inversion of the yield curve on May 4th was
the day after the last meeting of the Federal Reserve on monetary policy when
they raised the fed funds rate another ¼.
In their statement after the meeting, it eliminated the
previous language that said, "The Committee anticipates that some
additional policy firming may be appropriate."
The shift likely means that the FOMC is prepared to pause
for a time.
On Tuesday, the Federal Reserve will release its report
on Capacity Utilization for April.
Last month capacity utilization moved up to 79.8 percent.
The month-over-month gain in March is entirely due to an
8.4 percent jump in utilities production.
Manufacturing capacity is down 5 tenths to 78.1 percent,
mining down 5 tenths to 91.1 percent, and utilities up to 75.3 percent from
69.7 percent in the prior month.
The Federal Reserve does not meet again on monetary
policy until June 13 – 14.
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OFF BASE
Memorial Day is Monday, May 29th.
