Capstead in good spot of yield curve

You're seeing a lot of demand in the assets we hold, says Capstead Mortgage (CMO +1.5%) management on the conference call after reporting a blowout Q4. In a steepening yield curve environment - the short-end anchored while long rates move higher - Capstead is benefitting from tightening spreads in the 5/1 ARMs it mostly holds.

Mr. Market seems to have fleshed this out, and Capstead was already trading for right around book value (reported at $12.47 as of Dec. 31) vs. the double-digit discounts for long-end players like Annaly (NLY +0.2%), American Capital (AGNC -0.3%), Armour (ARR), and CYS Investments (CYS -0.5%).

Another in the adjustable-rate arena is Hatteras Financial (HTS +1.5%).


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Comments (3)
  • Hubert Biagi
    , contributor
    Comments (936) | Send Message
    Except that ARMs themselves are at higher risk as rates moves higher.
    30 Jan 2014, 10:30 AM Reply Like
  • MobilePreacher
    , contributor
    Comments (603) | Send Message
    not these arms hubert.. these are mostly very short duration arms... they barely move. the biggest risk to these is prepayments.. CMO has a very unique portfolio unlike any other mREIT... the average duration after hedging is about 30-90 days.
    30 Jan 2014, 11:51 AM Reply Like
  • William Packer
    , contributor
    Comments (1094) | Send Message
    i dont like ARMs.. libor isnt going up anytime soon and when it does.. maybe it goes up 0.50 or .75 bp... but certainly not more than that. the future of rates will never be like the 90s or 2005. fed funds will be stuck under 1% for another 5 to 10 years. another crisis is probably due as well so then it just goes back to 0 again. think student loans and consumer leveraged assets.
    30 Jan 2014, 11:29 AM Reply Like
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