Chimera Investment and Capstead Mortgage Technical Coverage: Mortgage REITs
Remain Under Pressure Due to QE3
LONDON, January 24, 2013
LONDON, January 24, 2013 /PRNewswire/ --
In September 2012, the Federal Reserve announced its most aggressive bond
buying program to stimulate the economy. The Fed's bond buying program has
brought down mortgage rates, hurting mortgage REITs such as Chimera Investment
Corporation (NYSE: CIM) and Capstead Mortgage Corporation (NYSE: CMO).
StockCall has been following Chimera Investment and Capstead Mortgage and
after the close yesterday, our analysts have releases technical analysis on
these companies. Register today to access these reports for free at
The Impact of QE3
Last year, after much speculation, the Fed finally launched a third round of
bond buying program to boost economic growth. The Fed surprised market
participants by launching an open-ended bond buying program. The central bank
said that it would buy $40 billion in mortgage-backed securities every month
until there is a sustained recovery in the labor market.
The Fed's aggressive bond buying program has resulted in a sharp decline in
mortgage rates. Last Thursday, mortgage giant Freddie Mac reported that the
average rate on a 30-year, fixed rate mortgage dropped to 3.38%. According to
Freddie Mac, 30-year mortgage rates averaged 3.66% in 2012. While declining
mortgage rates are helping borrowers that are underwater, they are having an
adverse impact on mortgage REITs such as Chimera Investment and Capstead
Mortgage. This is because the Fed's move is driving up the prices of mortgage
the prices of mortgage-backed securities and pushing yields lower. StockCall
free analysis on Chimera Investment is available at
QE3 Won't End Soon
The big question for mortgage REIT investors is how long the Fed will continue
with its bond buying program. According to minutes of the Fed's most recent
monetary policy meeting, some officials want the central bank to end the bond
buying program before the end of this year. However, Fed Chairman Ben
Bernanke, in a recent speech, suggested that the central bank is no rush to
end its quantitative easing program.
Given the state of the labor market, it is unlikely that the Fed will end its
quantitative easing program this year. Although unemployment rate in the U.S.
has fallen below 8%, it is still significantly above the level the Fed would
like it to be at.
With QE3 not expected to end anytime soon, Chimera Investment and Capstead
Mortgage Corp. [ Free Report on CMO ] ^[ ^1 ^] will remain under pressure.
Falling mortgage rates is not the only concern for investors in Chimera
Investment. The REIT could be delisted from the New York Stock Exchange (NYSE)
due to its failure to file its 2011 annual report and four quarterly
statements. Last week, Chimera received a lifeline from the NYSE.
The NYSE last week extended the deadline for Chimera to file its 2011 annual
report on Form 10-K with the SEC. The company now has until February 15, 2013
to file its annual report.
If Chimera fails to file its annual report by the extended deadline, the NYSE
will delist the company's shares. Even if the company manages to file its
return in time, shares could come under pressure if its results fall short of
Chimera currently has a dividend yield of more than 12%, while Capstead
Mortgage currently has a dividend yield of nearly 10%. However, the declining
mortgage rates and accelerated prepayments will erode the two companies' net
1.Capstead Mortgage Corp. Technical Analysis [
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