This is part two of my analysis of Capstead Mortgage (NYSE:CMO). In my previous article I articulated many positive attributes of CMO. Here let me first deal with the three negative attributes.
1. Market Failure: In the near term, when interest rates are under pressure, the mREIT sector is strongly affected. CMO gets swept into this current, but usually reverts to its fundamentals when volatility subsides. The vast majority of the mREIT universe is composed of companies (Annaly (NYSE:NLY), American Capital (NASDAQ:AGNC)) that hold long-term fixed rate mortgages using high leverage tied to short-term interest borrowing. When long-term rates go up, they are locked into lower yields on their mortgage portfolio, and when short-term
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