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504 Rate Update

504 Program Rate Update for June 2014

5.069% – 20 Year Debenture Effective Rate *


Rate Stability and Risk

The results of the June 2014 debenture auction are in, and they are virtually static with both the May and April results.

To borrow a nautical term, we are “becalmed”.


Chart and Statistical Data is from September 2006 to June 2014

Debenture Rate 10 Year T-Note
Spread Over T-Note
May 2014

This was a possible outcome which we discussed in detail in our April 504 Update. Due to a relative decline in the Federal deficit, the supply of Treasury securities coming to market in the short term is diminishing, thereby offsetting the decline in demand resulting from the scale down of the Federal Reserve’s bond purchases. In our May 504 Update, we re-emphasized this in the context of increasing demand for high quality fixed rate products from pension funds looking to match liability needs, reinforcing this trend by supporting the demand side.

Diminished supply combined with steady demand results in higher prices and lower rates; or at least stable low rates in a global capital market. For those of you with access, the Wells Fargo Interest Rate Weekly for this week posits the same argument with a twist: What is the future refinancing risk for borrowers who access rate in this lower rate environment, whether through short term fixed rate product or adjustable rate products?

With the 504 product, your borrower, as well as your institution’s balance sheet get to sidestep this question. The 504 twenty year fixed rate provides an ample hedge to this risk. Great pricing for your borrower, lower risk for you as a lender: perhaps it is time to look at the 504 option?

We welcome the opportunity to earn your business.

* Note: Rates are subject to credit determination & auction pricing. Past performance is no guarantee of future results.

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South Central Tennessee Development
101 Sam Watkins Blvd.
Mount Pleasant, TN 38474
Office (931) 379-2918
Fax (931) 379-2640

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