I really hate to be the bearer of bad news but what no one on this board seems to understand is that drop income is in no way actual income. Rather it is the accretion of the discount on forward purchased securities. What does that mean? You can't pay it out without selling those bonds. They are earning less than 30cents on an ongoing basis in cash and paying out 45 cents. How long can that persist? You are involved in an unatractive situation. I suggest you collect the pop on book value (which is 23c overstated , unless you admit that drop income isn't real. Double counting.) and move to more attractive names.
I'd also like to point out that due to the drop income, that is WHY the core earnings are 0.30. Because they much of the portfolio is FORWARD SETTLING! meaning that they are not earning income from a large piece of their portfolio as core earnings, because the don't own the asset yet. Thus reducing the core earnings, but CAUSING the drop income. The drop income is a better ROC.
Peace!! You are both just fighting over the TIME-VALUE-OF-MONEY . If you want to discuss the relative merits of each side why not include Present-Equivalent-Value calculations so we are
talking apples to apples!! Also note the upgrade today. This board discussion seems to have generated a change a positive change is sentiment.
I dont know how I can put this any more simply
You and I both buy a 4% bond on sep 30, only difference is mine is delivered immediately and you buy yours 3 months forward for cheaper. Lets say I pay 104, you pay 103. From Sep to Dec I will get a check cash coupon (less any prepayments for $1). You on the other hand get nothing except the commitment you will get a bond at the end of the year whihc you bought for $1 less. In economic terms we are equivalent. I have 104 of bonds at Dec30 with no unrealzed gain but $1 more in cash; you have 104 of bonds at june 30 with a cost basis of 103, a $1 realized gain but no cash. My book value is unchanged, your book value is up 1. Your 1 is drop income, you cant pay it out without selling part of your holdings and saying that you have this "income" that is just your portfolio unrealized gain is ridiculous.
For CYS, you cant have it both ways; either earnings are 48c and book value is 14.22 or earnings are 25c and book value is 14.46 as stated. This is just advantageous reporting.
That and dont get me started, the CEO was completely full of it on the conference call today. They have no call protection on those bonds whatsoever and have a big under-hedged position.