Pub. 8 2019 Issue 2

9 S u mm e r | 2019 110 cents on the dollar or more, and can prepay at the borrower’s behest, contains risk. In response, there are now SBA securities being issued and available at prices very near par. As part of the pooling process, certain amounts of the loan rates can be stripped off for alternative uses, leaving just enough coupon pass-through on a given bond to result in a market price between, say, 99.50 and 100.50. Yield and Price Stability You may have heard that the yield curve is relatively flat. In the good news/bad news environment in which community banks invest, this is a concrete example. The positive is that short-term bonds yield about the same as longer-term bonds, so today you don’t have to extend your maturities for reasonable returns. The negative is that a flat curve is usually followed by a secular drop in rates, more so on the short end. True floaters, like SBA 7(a)’s, will be the first to see their yields fall. More to the point, it’s totally uncer- tain that any rate-cutting will happen in the near future. Macro indicators like GDP, employment and inflation aren’t pointing to recessions any time F E A T U R E SBA Offerings: ICBA Securities’ exclusively endorsed broker, Vining Sparks, is one of the largest SBA 7(a) poolers in the country. Vining Sparks is interested in purchasing guaranteed portions of SBA loans directly from your community bank. To inquire about selling SBA guarantees, and to view its inventory of fixed- and floating- rate SBA pools, contact your Vining Sparks sales rep or visit viningsparks.com. Jim Reber is president and CEO of ICBA Securities and can be reached at (800) 422-6442 or jreber@icbase- curities.com . soon. And just as the current level of fed funds is far below the normal stop- out point in a rate hike cycle, maybe we’re in for a protracted period of stable rates. If so, then the current yields on these 7(a) pools are quite handsome. It’s not too difficult to achieve a return of around prime minus 275 basis points (2.75%), which as of this writing equates into a true yield of about 2.75%. Where’s the value in that? For starters, the 10-year Treasury note has averaged about 2.65% this year. For closers, these par-level bonds have virtually no prepayment risk and very little price risk, are pledgable, and produce monthly cash flow. What if you committed a portion of your securities portfolio to investing in low premium SBA 7(a) pools?