Sep. 8, 2014, 3:11 PM
- Bullish on the long end of the yield curve this year to the profit of his shareholders, CYS Investments (CYS +0.1%) CEO Kevin Grant - presenting at the Barclays FInancial Services conference - still isn't seeing how long-term interest rates can go up a lot.
- Presentation slides
- He notes the Fed GDP growth forecasts throughout the recovery have consistently been too optimistic, and the 2014 and 2015 estimates were just recently been reeled in a bit. Also, inflation - even under the Fed's maybe too high growth hopes - is still seen as coming in below the 2% target.
- The forward yield curve implies a 10-year Treasury yield perhaps nearly 100 basis points higher a year from now than it stands today, and Grant wonders how housing - already sluggish - will respond.
Sep. 3, 2014, 8:04 AM
- CYS Investments (NYSE:CYS) - led by Kevin Grant - has been the mREIT poster-child for riding the trend of falling interest rates in 2014. The stock is ahead 27% YTD while continuing to pay a fat dividend. A bull on the stock for some time, Maxim - worried about CYS's exposure what's looking like higher interest rates on the way - rings the register, downgrading to Hold from Buy.
- Capstead Mortgage (NYSE:CMO) - up 9% YTD - holds a portfolio of short-duration ARMs, meaning less exposure to rising rates and less money needed to buy hedges to protect against rising rates, Maxim upgrades to Buy from Hold.
- CYS is lower by 0.4% in premarket action.
Jul. 21, 2014, 4:15 PM
Jul. 20, 2014, 5:35 PM
Jul. 3, 2014, 9:56 AM
- A few days ago, the 10-year Treasury yield stood at about 2.50%, but it's been on the rise all week and shot up to near 2.7% this morning following the strong jobs print and drop in unemployment to 6.1%. Checking the short end of the curve, Eurodollar futures are selling off as well, and now have baked in more than one rate hike between now and one year from now, and 75 basis points of hikes by the end of 2015.
- Previously: Treasury yields jump, gold slumps after strong jobs print
- Off 1.1% today, Annaly Capital (NLY) is down nearly 5% since this time last week, with a similar move having taken place in American Capital Agency (AGNC -1.2%).
- Chimera (CIM -1.4%), CYS Investments (CYS -1%), Invesco Mortgage (IVR -1.8%), American Capital Mortgage (MTGE -1.6%), New York Mortgage Trust (NYMT -1.2%), AG Mortgage (MITT -1.8%), Ellington Residential (EARN -0.7%), Dynex (DX -0.8%), MFA Financial (MFA -0.9%).
- ETFs: REM, MORT, MORL
Jun. 9, 2014, 4:30 PM
Jun. 3, 2014, 9:37 AM
- 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.
May. 28, 2014, 2:43 PM
- The swoosh down in interest rates - the 10-year Treasury yield is now off 8 bps on the session to just 2.44% - isn't really boosting the mREIT sector (REM -0.1%), and one wonders which managements hunkered down for higher rates and now find themselves overhedged. There's also a flattening yield curve and it wasn't too long ago when the bear case on mortgage REITs was slimming net interest margin, not higher rates.
- Kudos to CYS Investment (CYS +0.5%) management, which - not finding a ton of value in mortgages - loaded up on Treasurys in Q1. The stock is one of the sector's stronger performers YTD, up 24.5%.
- Others today: Annaly (NLY +0.1%), American Capital (AGNC -0.7%), Armour Residential (ARR +0.7%), Hatteras Financial (HTS -0.3%), Capstead Mortgage (CMO -0.2%), Western Asset Mortgage (WMC -0.6%)
- ETFs: MORT, MORL
May. 20, 2014, 9:52 AM
- Dodd-Frank and the qualified mortgage rules associated with it aren't going away any time soon, says CYS Investments (CYS -0.2%) CEO Kevin Grant, presenting at a Wells Fargo conference. The upshot: It's going to remain tough to get a mortgage, housing will be sluggish, and a there will be a shortage of mortgages for companies like CYS to buy. "We're becoming a nation of renters."
- For adjustable mortgages, it's even more extreme. They're disappearing as new mortgage rules make it necessary to qualify borrowers on a fully indexed rate. Hatteras Financial (HTS) and Capstead Mortgage (CMO) - players in the ARMs arena - present later today.
- Reiterating what he said on the last earnings call, Grant says CYS - while it waits for mortgage spreads to widen - is buying Treasurys. The cost to finance a portfolio is next to nothing and Grant's able to get a spread often better than he can get buying mortgages.
- Presentation slides
May. 15, 2014, 1:13 PM
- In the red along with the rest of the stock universe all session, a bit of green begins to creep into the mortgage REIT sector (REM -0.4%) as the 10-year Treasury yield tumbles below 2.50%.
- Annaly Capital's (NLY +0.1%) Q1 results were a notable disappointment as management seemingly found itself overhedged while rates fell sharply. One wonders if the hedges were lifted at all for Q2.
- The sector's best performer today is CYS Investments (CYS +1.1%). Management indicated on the April 22 earnings call that it thought mortgages were too pricey, so instead had put a slug of money into Treasurys - a move looking pretty good so far.
- Others: Two Harbors (TWO), Chimera Investment (CIM +0.2%), Armour Residential (ARR -0.1%), AG Mortgage Investment (MITT +0.1%)
- ETFs: MORT, MORL
Apr. 29, 2014, 11:33 AM
- It's hard to get worked up about the taper upsetting the supply/demand picture in MBS this year, says American Capital Agency (AGNC -0.9%) CIO Gary Kain on the earnings call. Thanks to the slow pace of mortgage originations this year, 2014 will likely have the smallest pace of net MBS supply (gross supply minus Fed purchases) of any year this century (excepting the 2009 blowup). See presentation slides, page 12.
- Given these dynamics, says Kain, it's hard to make the argument that mortgages are overpriced at the moment.
- Previously: CYS Investment's Kevin Grant says mortgages are too pricey and awaits a pullback.
- Next, Kain looks (page 13) at the changing investor base for MBS as the Fed has become the gorilla. Who's been selling? Everyone, but it's mostly money managers who have cut back while the Fed fattened up its holdings. As for mortgage REITs, they've not only cut back their holdings (account for less than 5% of the market), but they've reduced leverage too.
- Previously: American Capital beats estimates; grows book value
Apr. 24, 2014, 10:36 AM
- A check of the mortgage REITs (REM +0.1%) finds not a lot going on stock price-wise following the first Q1 earnings reports from the sector this week (CYS Investments and Hatteras). As expected, book values grew and prepayments remained at a low level.
- Perhaps unexpected was a good deal of caution from CYS management about mortgage prices - right now, it's finding better value in Treasurys, and awaits a pullback in MBS prices before boosting those holdings. "The mortgage market is a little kid playing with matches," said CEO Kevin Grant on the earnings call (transcript). "We just don't know when everybody's fingers are going to get burnt. The traders that play in this market, they know this and they know they are playing with matches."
- Amid the low supply of MBS out there, Hatteras (HTS +0.1%) management on its call (transcript) says it now has 10 originators delivering wholesale product to the company covering more than half of monthly cash flow needs. Up next is expansion into jumbo ARMs.
- Other sector ETFs: MORT, MORL
- Individual names: Annaly (NLY +0.6%), American Capital (AGNC +0.7%), (MTGE +0.2%), Armour (ARR +0.1%), Two Harbors (TWO -0.6%), Invesco (IVR -0.1%), Capstead (CMO +0.3%), MFA Financial (MFA +0.1%), Western Asset (WMC +0.5%).
Apr. 22, 2014, 9:20 AM
- Mortgages aren't that cheap anymore, says CYS Investments CEO Kevin Grant, on the earnings call. Asked a question about the sale of MBS in Q1 and purchase of Treasurys, Grant says his team can actually create a spread with government paper similar to that of mortgages.
- The bottom line according to CYS management: Low volume and high prices in mortgages make it a good idea to wait for a pullback before becoming aggressive buyers again.
- Previous earnings coverage
- Shares +1.7% premarket
Apr. 21, 2014, 4:18 PM
- Core EPS plus drop income totals $0.35, beating estimates by a penny and compares to dividend of $0.32.
- As expected with the big gain in fixed income in Q1, book value per share of $9.68 bounced from $9.24 three months previous. The rebound is larger when considering the $0.32 dividend. The current price is a 9.8% discount to book.
- Interest rate spread of 1.89% is unchanged from Q4. CPR of 5.6% vs. 5.7% in Q4.
- Company cut agency portfolio size to $11.8B from $13.9B, and added $1.5B of Treasurys. Adjustment made to "reduce duration gap ... be in better position to take advantage of a possible cheapening of the Agency RMBS market." Leverage ratio of 6.32:1 compares to 6.97:1 in Q4.
- No shares repurchased during quarter vs. 5.2M bought during Q4.
- CYS +1.4% AH
- CC tomorrow at 9 ET
- Press release, Q1 results
Apr. 21, 2014, 4:06 PM
Apr. 21, 2014, 12:10 AM
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