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 http://www.stockcall.com/todaysopinions
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 http://www.StockCall.com/CIM012413.pdf
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]  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 expectations.
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 interest margin.
- Capstead Mortgage Corp. Technical Analysis [ http://www.StockCall.com/CapsteadMortgageCorp012413.pdf ]
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