Let's Talk Loans - Vol. 19
Welcome to volume 19 of Let's Talk Loans. I tackle what's trading and trending in the whole loan and lending market. If you're interested in the musings and conversations of what's happening in the loan space, you've come to the right place. I thank you for reading, please subscribe, like or share with your peers if you find it of value!
A few comments on trading volumes and yields for the month of August. Volumes are still high compared to our 5 year average (up 36%) but admittedly down significantly from the go go months of the pandemic. The shift to lack of liquidity has been startling for many of our clients due to historic organic loan growth. The 30 year fixed rate trade has gone cold despite very attractive yields (5.25% context) in the secondary market. HELOCs remain poplar due to their monthly or quarterly floating rate structure with yields north of 6% today. Autos have seen a meaningful shift for buyers looking for high 4% yield bogies. Unsecured / fintech lending is now north of 6% yields and we've seen longer term solar loans in the 7% context. Commercial real estate lending has even widened out recently with 10 year final balloon pools trading in the 5% context. Admittedly the product type matters significantly here. If you have cash and are looking to put money to work it's an incredible time to be a buyer in this market but a tough time to stomach prices as a seller.
On a personal note, happy Labor Day. Admittedly, that's a bit where my heads at today. I hope you, your friends and family have a wonderful weekend. If you're lucky it's a long one with a few extra days out of the office.
Next up - per the WSJ and Bloomberg, we had a bit of a surprise jobs number Friday. This is one of the last big data points before the Fed meets later in the month. Following Powell's Jackson Hole speech the market felt very hawkish. A joke went through the desk. What's the difference between a dove and a hawk? A dove predicts a 50bps hike and a hawk predicts a 75bps hike. If Powell is more data driven in his approach he has plenty to chew on here. The labor participation rate rose, more workers, that's good. However, that causes the unemployment rate to rise from 3.5% to 3.7% - a bit of a head fake. Still strong employment growth, which is just bizarre if we are in a true recession.
More on the dot plot. The top graph from Bloomberg is just after Powell's speech at Jackson Hole, the bottom is just after today's jobs number. The market got a bit more dovish due to a weaker than expected jobs number today and moved bets towards a 50bps hike. Remember, in this market you have to think opposite of what your instincts tell you. Better economic numbers mean a higher probability of a more aggressive rate hiking Fed for longer and that we are further away from cheap money. More ugly economic numbers raise the market's anticipation of a pivot from the Fed and a return to cheap money sooner.
Auto lending. I wrote a bit on auto lending for credit union's recently. Banks saw strong loan growth in most sectors during the 2nd quarter, with one exception.
"U.S. banks grew overall second-quarter loans about 4% from the prior quarter...the only category shrinking is auto"
We've seen a huge influx of below market coupons coming out of depositories for autos. I continue to beat the drum on raising your rates. Many are concerned that if they raise rates they will lose market share. I challenge you to test that theory. Later in the month we will be joined by Experian where we will do a deep dive on the auto sector. Stay tuned for a meeting invite on this topic for the last week of September.
For our credit union clients - new NCUA supervisory letter . Many of you have been praying for a break on the NEV test. Give that link above a click if you want to go directly to the notice.
That's it for the week, enjoy the long weekend.
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