The subject matter for this month’s update centers on the sharp drop in market rates in early August and its impact on fixed-rate loan pricing and deposit pricing.
We’ll also take a closer look at what may be a developing trend in SOFR-based floating-rate spreads.
Read on for more details.
Data Notes:
August pricing volume was up from July and above the YTD average, marking the second consecutive monthly increase after June’s drop.
Priced Commercial Loan Volume in $
Indexed to January 2024 = 100
The start of August brought a sharp drop in market rates, likely in response to the July jobs report, which fueled speculation about near-term Fed rate cuts. The FHLB, SOFR, and Treasury 60-month term rates—a proxy for fixed-rate funding—all dropped by about 50 basis points across tenors of 3 months or longer, resulting in lower coupon rates on loans.
July–August 60-Month Term
Selected Curves
The early August rate decrease deepened the degree of inversion in the FHLB funding curve. The rate drop from 1-month to 60-month widened from 78 bps in May to 160 bps by August 31. The 3-month rate is now 21 bps lower than the 1-month rate, and the 12-month rate fell 39 bps as the inversion trough continues to deepen and widen.
FHLB Curve
Selected Dates
Given the market rate decreases, pricing managers continued monitoring liquidity costs. Fixed liquidity costs fell slightly in August but remain 13 bps higher since April. Floating liquidity costs rose 10 bps since June, reaching their highest level in the past 12 months.
Approximate Liquidity Cost
Rolling Trend
For SOFR-based floating-rate loans, the increase in liquidity cost offset slight market rate declines, keeping all-in COF steady. Meanwhile, fixed-rate all-in COF mirrored market rates, falling 52 bps in August to 4.27%.
All-In COF by Month
Rolling Trend
Coupon rates fell for all structure types. Fixed-rate coupons dropped 46 bps, passing most of the funding cost decrease to borrowers. Floating-rate coupons also declined—Prime by 3 bps and SOFR by 10 bps—widening the revenue gap between floating and fixed-rate loans. Fixed-rate coupons now average 157 bps lower than SOFR-based coupons, up from a 96 bps gap in April.
Coupon Rate by Month
Rolling Trend
Despite passing along most of the funding cost drop, bankers managed a 6 bps increase in fixed-rate spreads in August. Fixed-rate spreads have rebounded 10 bps since June but remain 17 bps below January levels. Meanwhile, SOFR-based spreads continued declining—down 6 bps in August, marking a YTD low, 27 bps below January. Prime spreads also fell slightly, from 0.12% to 0.10%.
Weighted Average Spread to SOFR
Fixed-rate NIM increased 11 bps to 2.13% in August, while SOFR NIM fell 13 bps to 1.90%, down 33 bps YTD. Though fixed-rate NIM now leads SOFR NIM, it does so on lower revenue levels given coupon differences.
NIM by Month
Rolling Trend
Community and Regional+ institutions both reduced fixed-rate coupons—by 49 and 47 bps respectively. However, SOFR spreads diverged: community institutions held steady at 2.99%, while regional+ spreads dropped 7 bps to 2.31%.
Fixed-Rate Coupon
Spread to SOFR
Despite lower loan coupons, deposit rates remained unchanged in August. Regional+ institutions saw a 0.02% increase, while community institutions stayed flat. Interest-bearing non-time rates and CDs were steady (4.66% for regional+, 4.40% for community).
Note: Deposit rate data are based on portfolio snapshots from throughout the month, not a single month-end view.
Overall Deposit Rate Paid
Includes NIB Base
Interest-Bearing Non-Time, Rate Paid
(MMDA, CWI, Savings)
Our banking consultants and data scientists review Q2 PrecisionLender pricing data daily. If there’s something you’d like to know, contact insights@q2.com.