Since early March, we’ve posted regular updates on the commercial loan pricing markets, based on what we’ve seen when examining the PrecisionLender dataset. We look at several popular metrics and point out areas in which there have been noteworthy changes.
Today’s update is through the end of last week – June 5. If you’d like to see our previous weekly pricing market updates, you can find them here.
We track many more metrics each week than are spotlighted in these posts. The ones that didn’t “make the cut,” usually don’t get displayed because there’s either a) nothing much new to say about them, or b) the data is too murky and needs a few more weeks of monitoring before it can be shared.
That said, if you have questions about metrics that have appeared in previous posts, but not this latest one, please reach out us at to email@example.com.
NOTE: PrecisionLender’s data reflects actual commercial opportunities priced (loans, deposits, and other fee-based business) by more than 150 banks in the United States, ranging in size from small community banks to top 10 U.S. institutions. In addition to their variance in size, these banks are also geographically diverse, with borrowers in all 50 states.
Weekly Pricing Volume Continues to Climb
Commercial pricing activity continues to increase. The dollar volume of commercial loans priced in the first week of June was up 27% from the previous week. It was the highest weekly volume since March and notably – also higher than the weekly averages for January and February.
Three months into the COVID-19 crisis it appears that commercial banks may be getting their “sea legs,” so to speak. The further we move away from March, the more singular that month’s spike in pricing activity appears. In retrospect, it was likely a combination of the 150 bps rate drop that month, as well as initial exploratory conversations by businesses looking at liquidity options during the early days of COVID-19, before government programs were announced.
Average Weekly Priced Commercial Loan Volume
LIBOR Swap Curve Moves From Inverted to Flat
The inversion on the short end of the curve that was so prominent in late April essentially flattened out in the first week of June. Meanwhile the long end continues to steepen.
The April 23 numbers showed inversion through 84 months and only a 26 basis points of positive carry (1-month to 30-year). The June 5 curve is basically flat from 3 months to 36 and has 96 bps of positive carry.
For banks that have been employing various adjustments to impact both the absolute rate and slope of their funding curves, it may be time to examine those tactics.
3-Month LIBOR Swap
Margins Consistently Higher In May, Thanks to Lower COF
Net Interest Margins for both fixed- and floating-rate loans were consistent week to week in the month of May, after an initial jump up from April. As a result, fixed-rate NIM for May was 30 bps higher than April, while floating-rate NIM rose 26 bps.
In both cases, the improvement was largely driven by lower funding costs, which dropped by 22 bps for fixed- and by 50 bps for floating-rate loans.
REMINDER: In the PrecisionLender solution, NIM is an interest-rate risk and liquidity risk-adjusted metric, based on incremental asset yield and marginal funding costs.
Fixed-Rate NIM Composition by Month
Floating-Rate NIM Composition by Month
Fixed-Rate Coupons Staying Consistent Despite Marginal COF Drop
This week we decided to dig deeper into the yield numbers we’ve been tracking by looking at coupon rates by month.
We found that, after a drop in early March, bankers have remained steady in the rates they’ve priced for fixed-rate loans. The coupon rate on those deals has dropped only 49 bps since January, even after the 150 bps drop in short-term interest rates in mid-March. That’s contributed to steady yields in the second quarter of 2020 and some of the increased NIM.
Meanwhile, the coupon for floating-rate loans track the index and spread changes we’ve seen year-to-date. For floating-rate loans priced to 1-month LIBOR, the 128 bps drop in the coupon rate since January reflects 1) the index rate change and 2) the 25 bps increase in spread to index. For prime-based floating rate loans, the 142 bps coupon decrease reflects 1) the 150 bps drop in the index and 2) the 8-point uptick in prime spreads in 2020.
Coupon Rate by Month
Our banking consultants and data scientists are combing through PrecisionLender pricing data every day. If there’s anything you’d like to know about what they’re seeing, please send along your questions to firstname.lastname@example.org.