Company: CIMO
Filing Date: 2025-11-06
Form Type: 10-Q
Source: 0001409493-25-000028
Chunk: 175

Company: CHIMERA INVESTMENT CORP
Filing Date: 2025-11-06
Form: 10-Q
Item: Item 8
Chunk 175
---
 in swaptions with 18-month expiries and 2-year underlying swap tenors as part of the hedging framework.

Market Conditions and our Strategy

Interest Rates

Early in the third quarter of 2025, global markets continued to navigate a number of uncertainties. The U.S. administration continued its tariff negotiations, reaching agreements with Japan and the European Union and extending deadlines with China and India to allow further time to reach an agreement. After quarter end, the current administration imposed tariffs on certain distinct industries, including pharmaceutical, wood products and furniture, and heavy-duty trucks; trade tensions with certain countries and overall uncertainty on the ultimate path forward remain elevated.

On the economic front, inflation increased slightly during the third quarter, reaching 3.3% in September, and the labor market began to show signs of stress, making the Federal Reserve’s pursuit of its dual mandate for price stability and maximum employment a challenge. After holding its target Fed funds range steady between 4.25% and 4.50% in July, the Federal Reserve acted to reduce its target Fed funds rate by a quarter-point in September, noting that “uncertainty about the economic outlook remains elevated” and “downside risks to employment have risen.” Further, the Federal Reserve maintained its policy to reduce its portfolio holdings under monthly caps of $5 billion for U.S. Treasuries and $35 billion for Agency RMBS. Overall, markets were resilient despite the disruptions as major indices hit record highs and interest rate volatility eased from the peak in the second quarter.   

Interest rates declined throughout much of the third quarter along the yield curve as markets adjusted to expectations for rate cuts and economic uncertainty increased alongside rising unemployment and higher inflation. The yield on two-year Treasury notes fell by 11 basis points to 3.61%, while the yield on ten-year Treasury notes dropped by 8 basis points to 4.15%. Meanwhile, interest rate volatility eased to its lowest level since early 2022.

Credit Spreads

Credit markets reflected a stable-to-positive risk sentiment in the third quarter. Nominal MBS spreads remained flat as volatility subsided and demand stabilized, after the initial tightening of 21 basis points earlier in the quarter. Corporate spreads tightened by 9 basis points for investment grade and 23 basis points for high yield. In securitized products, credit spreads tightened moderately, supported by strong collateral performance and broad investor demand, as year-to-date residential credit issuance volume surpassed full-year 2024 levels.

Residential credit fundamentals remained robust, underp