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 analysis is for the first half of October. In this update we found:
- A reverse in pricing volume trends.
- Continued improvement in spreads
- A potential explanation for why funding costs remain low
We track many more metrics 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.
Volume Falls, Bucking Recent Trend
After rising steadily since July, pricing volume dropped in the first half of October. It was at roughly July levels and below pre-COVID marks. It’s too early to offer any potential theories about the reversal. We’ll keep monitoring it to see if it’s just a blip, or the start of a new trend.
Priced Commercial Loan Volume, Weekly Average
LIBOR and Prime Spreads Rise to Highest YTD Levels
While the trend is a bit choppy, the overall trend of increasing spreads continued, as spreads to both LIBOR and Prime rose to their highest levels, YTD. Average spread to 1-Month LIBOR increased 12 basis points to 2.68%, while average spread to prime increased 6 bps to 0.57%.
Funding Curves Continue to Steepen …
Meanwhile, funding curves have continued to steepen since July. The latest snapshot – taken on Oct. 15 – shows an increase of 8 bps at the 10-year-mark and 8 bps at the 30-year mark, when compared to the Sept. 30 snapshot. When the Oct. 15 snapshot is compared to the July 31 snapshot, the 10-year mark is up 22 bps, while the 30-year mark is up 39 bps.
3-Month LIBOR Swap Curve
… Yet Funding Costs Remain Unchanged
Interestingly, steeper funding curves have not translated to higher funding costs. In fact, since July, the COF for both fixed- and floating-rate deals dropped initially and then remained virtually unchanged in recent weeks.
Overall COF% Trend
Term-Liquidity Premium May Explain Lower Funding Costs
So why haven’t funding costs risen alongside steepening funding curves? A possible reason could be the other factor that influences COF – term liquidity premiums.
PrecisionLender keeps tabs on liquidity through market data we receive. While this is not a universal measurement – some banks using their own liquidity curves may see something different – we believe it does serve as a good proxy for general industry liquidity trends.
The chart below shows that – after a major spike at the start after the COVID-19 pandemic, when interest rates dropped rapidly – term liquidity premiums have steadily declined. They’re now below pre-COVID levels. For example, the TLP on a 10-year deal in October is below what the TLP was for a 5-year deal back in February.
Estimated Liquidity Curve Tends, YTD Selected Term Points
Liquidity Building in Interest Bearing Accounts
Looking through PrecisionLender’s deposit data provided additional confirmation for what we’re seeing with regard to liquidity. The average balance for interest-bearing deposit accounts has risen steadily in the past six weeks. Though the trend is choppy, overall there’s been an increase of 24 percent – from ~ $125,000 in February to ~ $155,000 in mid-October – in average account balances.
Average $ Balance Per Interest-Bearing Account
Our banking consultants and data scientists are combing through PrecisionLender pricing data every day. If there is anything you’d like to know about what they’re seeing, please send along your questions to firstname.lastname@example.org.