The SBA and PROCURATOR

Procurator

 

proc·u·ra·tor

 

a person who acts or does business for another

 

Latin procurator ‘administrator, finance agent’, from procurat- ‘taken care of’, from the verb procurare  ‘take care of, manage’, from pro- ‘on behalf of’ + curare ‘see to’.

 

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TIP OF THE WEEK

 

With its new Risk Mitigation Framework, SBA has now become the procurator for all SBA 7(a) lenders, even PLP lenders.

 

As a result SBA, not lenders, determine whether an applicant meets primary eligibility requirements.

 

SBA Applicants who obtained an EIDL loan or PPP loan will often be flagged for potential fraud creating an ETRAN error code.

 

Any SBA 7(a) loan delayed because of an ETRAN error code that cannot be resolved in a timely manner can instead utilize a SSBCI guarantee.

 

There is NO guidance on amortization with a SSBCI guarantee.   Lenders can use any amortization they want.

 

Amortizing a SSBCI guaranteed loan with a balloon payment would then be eligible for a subsequent SBA refinance if the ETRAN error code is eventually resolved.

 

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Indices:

PRIME RATE= 8.50%

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SBA 504 Loan Debenture Rate for December

 

For 20 year debentures, the debenture rate is only 5.23% but note rate is 5.30472% and the effective yield is 6.707%.

For 25 year debentures, the debenture rate is only 5.28% but note rate is 5.33413% and the effective yield is 6.594%.

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AHEAD OF THE YIELD CURVE

 

Our procurators of interest rates, the Federal Reserve at their last meeting on monetary policy kept the fed funds rate in its range of 5.25 to 5.50 percent.

 

The most notable change is the insertion of "any" in the policy outlook which now reads, "In determining the extent of ANY additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

 

This would strongly suggest that the current tightening cycle has peaked unless there is something that would prompt policymakers to rethink it.

 

30-Day Fed Fund futures pricing data have long been relied upon to express the market’s views on the likelihood of changes in U.S. monetary policy.

 

Here are the Futures Implied Fed Funds

Dec-29-2023       5.33000

Feb-29-2024       5.29500

May-31-2024      4.90500

Aug-30-2024       4.44000

Nov-29-2024      4.07500

May-30-2025      3.42500

Nov-28-2025      3.21000

 

 

What does all this mean?

 

I don't know.

 

In its statement, the Fed maintained that inflation remains elevated.

 

The long end of the yield curve prognosticates inflationary expectations and ultimately market rate expectations.

 

Last week’s auction of 30 year treasury bonds the high yield was 4.344 percent, down from 4.769 percent last month and from 4.837 percent two months ago.

 

On Friday the 30 year Treasury yield closed at 4.012.

 

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

 

More procellous promulgations on the yield curve’s continued inversion is profligate.

 

An inversion of the 3 month treasury bill and 10 year treasury note began in late October of 2022.

 

That makes this one of the deepest and longest 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).

 

Of course, it might not be advisable to take these numbers quite so literally.

 

The underlying determinants of the yield spread today are materially different from the determinants that generated yield spreads during prior decades.

 

Differences could arise from changes in international capital flows and inflation expectations, for example. The bottom line is that yield curves contain important information for business cycle analysis, but, like other indicators, should be interpreted with caution.

 

 

 

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OFF BASE

 

Christmas this year is on Monday December 25th .   It is an official bank holiday according to the Federal Reserve.

 

The next Monday is New Year's Day, also a bank holiday.

 

Happy Holidays!