July 30, 2017 – The Federal Reserve voted unanimously this week to maintain the federal funds target rate at 1%-1.25%, a conclusion the markets widely expected.  Additionally, as anticipated, the Fed stated they would be implementing a plan to unwind QE “relatively soon”.  However, the market seized on a few tweaks in the policy statement that made it appear slightly more dovish.  The Fed described inflation as running “below” target rather than “somewhat below.”  In a nod to the economy’s prolonged period of sluggish price gains, the Fed omitted referring to declines in inflation as “recent.”   Markets interpreted the Fed’s inflation assessment as dovish.  In response, the dollar fell to a 13-month low against a basket of currencies and a 2½-year low ($1.17) versus the euro. The yield on the 10 year Treasury note dropped before heading gently higher to close the week at 2.30%.  At a yield of 2.30%, that is in the middle of a 10 basis point trading range for the past 30 days.  Also of note, the spread between 3-month and 10-year Treasuries reached as low as 105 basis points this week, down from 194 basis points on January 1. A narrower spread reflects the bond market’s subdued view of growth and inflation.  A flat yield curve, low rates and a low volatility environment are the perfect ingredients for Alternative Lenders operating in the capital markets.  

In Alternative Lending news, Varo Money, a mobile first banking product that accepts deposits and makes loans, announced it has applied for a traditional bank charter. This is the second fintech company to apply for a bank charter after SoFi applied for an industrial bank charter last month.  Darien Rowayton Bank priced $221 million of student loans  in three tranches (DRB 2017-B) in their second securitization this year.  Prosper Marketplace Issuance (PMIT 2017-2), filed form 15G with the SEC for a securitization of consumer loans. This will be the second loan securitization of 2017 for Prosper.

Opinions expressed within the commentary are general opinions of Chris Lalli and Jae Lim and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  Payden & Rygel, TIAA-CREF, Orchard Platform