CYS' Grant not too concerned with higher rates


This has become a rates business with not a lot of choice on the asset side, says CYS Investment CEO Kevin Grant, presenting at KBW. New qualified mortgage rules have made traditional adjustable-rate mortgages a thing of the past, he says, leaving investment choices at pretty much traditional 15- and 30-year fixed loans.

Presentation slides

The Treasury rally? Grant isn't surprised by it and says - given the level of the Fed Funds rate - 2.5% on the 10-year is perfectly reasonable. Grant's not impressed with the Fed's (somewhat) rosy economic projections , noting the central bank has consistently been too optimistic on the economy for several years.

Grant and CYS have been notable in past months for allocating a sizable portion of the portfolio to Treasurys, with 5-year paper a favorite. It's all about the borrow, says Grant, who says he can generate a spread of more than 200 basis points with zero prepayment risk. Treasurys now make up 12% of the CYS portfolio.

Comments (2)
  • James Bjorkman
    , contributor
    Comments (2721) | Send Message
     
    Grant was ahead of the crowd in getting into treasuries when they were up near 3 on the ten year. Seems to have a grasp on what's going on.
    3 Jun 2014, 12:44 PM Reply Like
  • DAVE22Q
    , contributor
    Comments (406) | Send Message
     
    if the prepay risk on 15 yr mortgages is enough to offset the spread with 5 yr treasuries, he is doing an awful job. the rate is half what the mortgage rate is- 1.65 vs. 3.2. he is making a very risky bet on rates dropping.
    he will look good only if the 10 year drops below 2.3 and hold there. then he will have high prepays vs. cap gains on his treasuries. reckless is a conservative description of this bet.
    5 Jun 2014, 05:00 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs