Capstead Mortgage Corp. (NYSE:CMO) Q2 2020 Earnings Conference Call - Final Transcript

Jul 30, 2020 • 10:00 am ET

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Capstead Mortgage Corp. (NYSE:CMO) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Executive
Robert R. Spears

rate bonds. And so the steepening in the yield curve has definitely helped. And a lot of times rates get this low, people don't try to reach for as low a yield as they can. And so from that standpoint, we're very positive on new issue. Secondary selling was a lot less in the second quarter obviously. But we're very optimistic as far as being able to acquire bonds going forward.

Analyst
Steve Delaney

Great. And just looking at your swap book. I mean, you've got -- trying to figure out -- you're going to have faster speeds. And I assume that Lance has probably already adjusted the lifetime assumption given the curve that exists today. So you can't get any -- Fed can't go any lower on the short end, right? So it would seem to me that your improvement -- you've got to hope your swap runoff helps offset some of the pressure on your spread that you see from the faster speeds. So it looks like you have 400,000 -- excuse me, $400 million runoff here in the second half of this year, averaging about 180 that obviously would go as low as 25 basis points.

I'm looking at the schedule, the number that jumps out is this $2.5 billion in the -- a year from now, third quarter of '21 at 125 basis points. Any thoughts about that? I mean you've done some swap termination and -- already. But what are your thoughts about that specific swap position and whether you would trade out of that?

Executive
Robert R. Spears

Yes. I mean we're -- we look at that on a regular basis, and there's a decent probability that we could terminate some shorter-duration swaps that go out the curve a little bit. Quite frankly, right now, we're able to essentially think about it on do your money cheaper than we can at 30-day repo. And so I think we're very, very cognizant of what's going on there, and there's a decent probability that we do some of that.

Analyst
Steve Delaney

Yes. I mean there's -- the four year swap is the same as -- roughly the same as the two year swap. So I mean you can -- you got a lot of flexibility it would seem there. And one final thing, just ARM is showing roll-downs right around 2% on one year resets. Is that what you're seeing? I guess it's a range more of probably like 190 to 210.

Executive
Robert R. Spears

Yes. I mean you just kind of think about our margins on our ARMs in 1-year LIBOR at 50, you kind of get in the low 2s on our short reset book. And the positive thing about that -- obviously, coupon going lower is slightly negative, but the positive is those guys resetting down on mortgages in the 2.5% to 2.75% area and so they're probably not going to be as primed to refi. And we're seeing that in our book right now.

The prepay pressure that we're really seeing right now on