The SBA and PROpound

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.