Chimera Investment Corporation (CIM) Q2 2019 Earnings Call Transcript
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Chimera Investment Corporation (NYSE: CIM)
Q2 2019 Earnings Call
July. 31, 2019, 9:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation Second Quarter 2019 Earnings Conference call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question at that time, simply press *1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, press #. We asked that while posing your question, you pick up your headset to allow for optimal sound quality. It is now my pleasure to turn the floor over to Emily Mohr of investor relations. Please go ahead.
Emily Mohr -- Vice President of Investor Relations
Thank you, Kristi, and thank you, everyone, for participating in Chimera's Second Quarter Earnings Conference Call. Before we begin, I like to review the safe harbor statement. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the risk factor section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the forward-looking statement disclaimer in our earnings release in addition to our quarterly and annual filings.
During the call today, we may also discuss non-GAAP financial measures. Please refer to our SEC filings and earnings supplement for reconciliation to the most comparable GAAP measures. Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earnings call. We do not undertake and specifically disclaim any obligation to update or revise this information. I will now turn the conference over to our President and Chief Executive Officer, Matthew Lambiase.
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Matthew Lambiase -- President and Chief Executive Officer
Good morning and welcome to the Second Quarter 2019 Earnings Call for Chimera Investment Corporation. Joining me on the call this morning our Mohit Marria, our Chief Investment Officer; Rob Colligan, our Chief Financial Officer; Choudhary Yarlagadda, our Chief Operating Officer; and Victor Falvo, Chimera's Head of Capital Markets. I'll make some brief comments, and then Mohit will review the activity in our portfolio, and Rob will discuss our financial results, and afterward will open up this call for questions.
In a very challenging second quarter, Chimera posted an economic return of 3.6%, which is a solid result considering the extremely low interest rate environment and the flatness of the yield curve. During the period, the yield on the 10-year treasury fell 40 basis points to a 2% yield, a level not seen since November 2016. Global interest rates also hit multi-decade lows in the second quarter with a 10-year German bond at -33 basis points and 10-year Japanese bonds fall into -16 basis points. There are now Reportedly over $13 trillion of global bonds trading at negative yields. Low bond yields are happening at a time with LIBOR remaining stubbornly high. One-month LIBOR, a key rate for short-term borrowing, closed the quarter at 2.4% underscoring the difficulty that most financial companies have maintained a healthy net interest margin when borrowing costs are higher than asset yields.
30-year agency mortgage-backed securities did not perform well as the treasury market rallied in the quarter. The lower-interest rate environment increased mortgage prepayment expectations causing shorter duration and lower yields on outstanding bonds. While longer interest rates fell, Repo funding costs for mortgage-backed securities remain high. Historically, the borrowing costs for agency mortgage-backed securities approximate the one-month LIBOR rate. In the second quarter, agency Repo costs were on average, 20 basis points higher than LIBOR. Declining yields and higher borrowing costs put pressure on our margins in the second quarter. However, we're hopeful that we'll get some relief in the second half of the year from the Federal Reserve with either one or two interest rate cuts.
On a brighter note, our Ginnie Mae project loan portfolio outperformed in the quarter. There is superior call protection, and the lack of new origination made agency CMBS, and attractive asset class and their prices outpaced US treasuries. Chimera now has over $3 billion of agency [audio cuts out] offers some of the best value in the fixed income market, and our team continues to be successful in finding investments at that portfolio. Last night or Board of Directors announced a $0.50 per share common dividend for the third quarter, and we reiterated our intention to pay $2.00 in common dividends for the full year 2019.
We believe Chimera is well-positioned to continue to produce meaningful dividend income to our shareholders into the quarters ahead. And with that, I'll turn it over to Mohit to discuss the portfolio in the quarter.
Mohit Marria -- Chief Investment Officer
Thank you, Matt. The recent downward trend in interest rates and the flattening of the treasury yield curve that began late last year continued in the second quarter. Over the past three quarters, 10-year U.S. Treasury yields have fallen by over 100 basis points after reaching a peak of 3.24% in November. LIBOR rates, which impact our cost of borrowing and hedging, over the same time period have increased 14 basis points for one-month LIBOR and decreased 8 basis points for three-month LIBOR. Currently, the difference between one-month LIBOR and tenure swaps is at a -44 basis points with one-month LIBOR at 2.4%, and tenure interest rates swap below 2%.
The Federal Reserve, Open Market Committee, concludes their two-day meetings this afternoon. We anticipate much of the discussion will focus both global and domestic economic activity, US trade wars, and inflation expectations. At recent congressional testimony, Chairman Powell set the stage for a potential cut of interest rates which will be the first time in a decade. We believe most of the interest rate discussion at the Fed meeting will center around the amount of any rate cuts and further monetary policy accommodation through quantitative easing. Consistent with the consensus in the market, we believe they will cut rates by 25 basis points. Any easing of policy should provide some relief on both LIBOR or Repo rates.
Homeowners can refinance their homes at any time. Like treasuries, the rate on mortgage loans has fallen, resulting in market expectations of an increase in prepayment speeds. This has lowered the yield and shorten the duration of our Residential Agency Mortgage portfolio. To help manage the agency portfolio duration this quarter, we have further reduced our net interest rate swap exposure by 1.8 billion notional value of hedges. Chimera's agency portfolio is differentiated among our peers. $3 billion or approximately 20% of our agency portfolio is allocated to agency CMBS. This portfolio of Ginnie Mae project loans carries explosive call protection benefiting the holders of the securities.
This prepaid protection helps better define the true duration of the securities enabling us to closely match upper swap hedges and lock in attractive net interest margins. The recent volatility in interest rates and embedded call protection in Ginnie Mae project loans have attracted additional demand from investors resulting in tighter spreads and higher prices for the quarter. And as Matt mentioned, the better convexity and positive price performance of our agencies CMBS helped benefit our book value this quarter.
In credit, our nonagency mortgage-backed securities and residential loans combined to represent 73% of our equity capital and 55% of our overall assets. Our credit portfolio continues to perform well and across the board has exceeded our projections made at initial investment. This quarter, we funded $188 million investment in Freddie Mac SLST 2019-1. This investment is backed by $1.2 billion in seed and reperforming loans. The loans have a weighted average coupon of 4.2% and a weighted average loan balance of $161,000 and a 75% weighted average loan to value ratio, and the underlying FICO on the deal is 581.
Separately, we secured tasks but did not consolidate $364 million of CIM 2019-INV2. This is our second investor loan securitization 2019. The loans have a gross factor of 5.1% and an average loan balance of $253,000. The investor deal has a 68% loan to value ratio and an average FICO of 770. Chimera retained a $34 million investment insubordinate bonds and I/O securities in this deal.
The market for loan securitizations continue to improve over the course of the quarter, and the drop-in interest rates, specifically on the short end and intermediate points of the yield curve have helped generate additional demand from institution investors for high quality fixed income spread product. The tightened spread, and lower AFFO yield on senior securities bodes well for new issued securitization business. Efficient and successful whole loan securitization have been paramount to our past success enabling Chimera to continue creating high-yielding subordinate securities for long-term investment portfolio.
Post-quarter-end we've committed to purchase an additional $1 billion in mortgage loans. These purchases are now in the underwriting and due diligence phase of acquisition. Consistent with our historical reporting, we will give more clarity on the investment characteristics of these transactions upon settlement in the quarter of closing. I will now turn the call over Rob to discuss the financial results for the quarter.
Rob Colligan -- Chief Financial Officer
Thanks, Mohit. I'll review the financial highlights for the second quarter of 2019. GAAP book value at the end of the second quarter was $16.24 per share in our economic return on GAAP book value was 3.6% based on the quarterly change in book value and second-quarter dividend per common share. GAAP net income for the second quarter was $40 million. On a core basis, that income for the second quarter was $98 million or $0.53 per share. Economic net interest income for the second quarter was $143 million. For the second quarter, the yield on average interest-earning assets was 5.4%, our average cost of funds was 3.4% in our net interest spread was 2%. Total leverage for the second quarter was 5.7:1, while recourse leverage into the quarter at 3.7:1. For the quarter, our economic net interest return on equity was 14.5%, and our GAAP return on average equity was 6%.
Expenses for the second quarter, excluding servicing fees and deal expenses, were $19 million, down from the first quarter primarily related to lower compensation expenses partially offset by higher G&A. That concludes our remarks and will now open the call for questions.
Questions and Answers:
Operator
If you would like to ask a question during this time, simply press *1 on your telephone keypad. Your first question is from Doug Harter with Credit Suisse.
Doug Harter -- Credit Suisse -- Analyst
Thanks. Understanding that you'll give us more detail on the loan portfolio next quarter, but I was just hoping you could talk about kind of your capital position to fund that portfolio, acquisition, and whether you can do that through just adding leverage or whether you would reduce the agency portfolio in order to finish that acquisition?
Mohit Marria -- Chief Investment Officer
Good morning Doug, this is Mohit. We have ample liquidity to fund the acquisitions that'll be happening in the third quarter via selling agencies and via ample cash as well. So, depending on the availability of further assets, we have both tools at our disposal to fund purchases.
Doug Harter -- Credit Suisse -- Analyst
Great, thanks Mohit. And you've now done a couple of investment property securitizations, can you talk about kind of your outlook for that continuing to be kind of a source of investment?
Mohit Marria -- Chief Investment Officer
Yes, I think as we've mentioned in prior calls, we think agency eligible loans securitized on the private label side isn't ample opportunity. We've done it in the investor space. We've looked at LTV loans as well. We hope to do a deal ¼ in the future, so we think there's gonna be ample supply there.
Doug Harter -- Credit Suisse -- Analyst
Okay, thanks, Mohit.
Operator
Your next question is from Eric Hagan with KBW.
Eric Hagen -- KBW -- Analyst
Thanks, good morning. A couple of housekeeping items. 1.) Leverage ticked down, but it looks like the portfolio was basically the same size quarter over quarter. I just wanted to understand kind of the nature behind that leverage coming down. 2.) -- Well actually, if you could just answer that and I'll jump to number two after that. Thanks.
Rob Colligan -- Chief Financial Officer
Eric, this is Rob. I think what happened at quarter-end last -- at the end of the first quarter, we did have some agency trade settling over quarter-end where we had the Repo on, but the deal or the trade settled right after quarter-end. Even though the balance sheet doesn't look dramatically different, we had some Repo payoff early April.
Eric Hagen -- KBW -- Analyst
Got it, got it. Thank you. And in the transfer from -- the second question on the housekeeping, the transfer from the credit reserve, almost $16 million in the quarter, can you just identify where that came from in the quarter, or in the portfolio? Excuse me.
Rob Colligan -- Chief Financial Officer
It's still part of our nonagency book, and it generally points to improvement in cash flows on the portfolio as we run and update them every quarter.
Eric Hagen -- KBW -- Analyst
Got it. Was that in the securitized loan portfolio or is it the legacy nonagency RMBS portfolio?
Rob Colligan -- Chief Financial Officer
Primarily the legacy RMBS.
Eric Hagen -- KBW -- Analyst
Got it. Okay, great. And then a follow-up on the investor property deals. How does the WAC on those loans compared to the presumed rate that the borrower would get if they finance those loans through the GSEs?
Mohit Marria -- Chief Investment Officer
The loans are originated for GSE execution deliverability, so I don't think the WAC is necessarily different, but given the rates of decreased quite significantly, it's over the third of the year the WACs that we've acquired will always be higher and as the rates reset down future origination lower WACs.
Matthew Lambiase -- President and Chief Executive Officer
And just to be clear, the loans that are originated could be put into agency pools, so they are eligible for agency guarantees but the guarantee fee that the agencies charge is worse execution for the originators then putting them into a private label security. So, these are very high-quality mortgages, and the execution is better in private labels than doing it through the agencies.
Eric Hagen -- KBW -- Analyst
Okay, but just to be clear, just because of that difference in the GC, the actual rate to the borrower wouldn't actually change, it's the execution in the secondary market that --
Matthew Lambiase -- President and Chief Executive Officer
That's exactly right, that's exactly right, yes.
Eric Hagen -- KBW -- Analyst
Got it, got it. Okay, great. And if you can just shine some light on where current spreads and returns are within the buckets of your agency portfolio, that'd be great. Thank you.
Mohit Marria -- Chief Investment Officer
Sure, so all start with the agency pass-through bucket, given the spread widenings that occurred in Q2 we think leveraged returns, net of hedges are probably gonna be high single digits, low double digits. Given the sort of WAC and Repo financing, as we discussed in the opening remarks. The agency CMBS, however, has lacked some of that. Actually, quarter over quarter spreads were tighter. Those levered returns there are going to be between 12% to 13%. Q2 was slow in the origination, so we weren't able to acquire much, but we anticipate Q3 to have some more originations which should be accretive to the portfolio and an opportunity to add some more assets there.
Eric Hagen -- KBW -- Analyst
Great, thanks for that color. One more actually for me if you don't mind. What percentage of your securitized is debt? Is it floating versus fixed-rate at this point and what's the index and the margin on that floating rate that -- please? Thanks.
Mohit Marria -- Chief Investment Officer
I think the breakout between fixed and floating is still around 50-50, I think 49-51. The index on all the debt issued is one-month LIBOR, and the DM or the margin ranges anywhere from 100 to 250. I don't have a blended rate, but we can get you that number.
Eric Hagen -- KBW -- Analyst
Nope, that's helpful. Thank you so much, guys.
Operator
Your next question is from Stephen Laws.
Steve Laws -- Raymond James -- Analyst
Hi, good morning. I want to touch first on the macro side, you know the Consumer Financial Protection Bureau and dated a couple of weeks ago the gonna let the QM patch expire in 2021 January, so about 18 months I guess. It could shift $150 billion of loans from the government side to the private market roughly. Can you talk about that opportunity, how much of that you think falls, and types of products that you would look to invest or obtain some type of credit piece behind the pool of loans? But could you talk about that transition as the opportunity in the private market looks like it's can it continue to grow going forward?
Mohit Marria -- Chief Investment Officer
Yeah, anything that removes the GSEs from acquiring more assets would be good for private capital. We will see if it comes to fruition, but as we've mentioned earlier, we are already looking at stuff that is GSE eligible that we are financing on the private label side given the GV. I think in some of the near-miss stuff that the GSEs are currently taking on the QM side, the non-QM market has seen a lot more issuances become a significant part of the market, and I think there's opportunities there for us to deploy private capital and be accretive to earnings.
Steve Laws -- Raymond James -- Analyst
Right will hopefully continue to get more color on that as it -- in the rearview mirror or review focus. But shifting -- or actually, first, follow up on Doug's question about funding new investments and shifting from agency, what would you need to see out there to raise capital? I know you I think did a preferred deal, if I remember, maybe late last year; but how do you -- what is the internal discussion between raising new capital to fund investments versus reallocating away from the agency portfolio?
Matthew Lambiase -- President and Chief Executive Officer
Well, hi there this is Matt. I just like to say that I think we have plenty of capital at the moment to execute the transactions we have in front of us for the next six months. I think it's our desire to probably slowly get out of our agency mortgage-backed securities, the residential pass-throughs, and deploy that capital into residential mortgage credit. I think the fundamentals for residential mortgage credit are really terrific. The unemployment rate in the country is very low, which is very good for housing credit. More people working means more people paying their loans, and we're seeing housing, although the prices are coming up slowly, they are coming up, and that's actually good for residential mortgage credit too. And I think there's been a tremendous amount of cash flow into the money managers.
If you listen to Black Box earnings calls and some of the other big money managers, they're getting some significant inflows into their fixed income funds. And I would imagine it's gotta come from these foreign investors that are facing negative returns in their home markets and they're looking to the United States for positive returns, and that money comes into these money managers and is really going into mortgage credit. And I think that dynamic is gonna be pretty strong for the rest of the year, and I think it just underscores our conviction that residential mortgage credit is the best place to be in the securitization market, in my opinion, is going to be strong for the rest of the year.
So, the short answer is I think we have plenty of capital. I think what would come out of agency mortgage-backed security 30-year residential stuff and deploy it into deals that we securitize, more pieces and deals that we securitize.
Steve Laws -- Raymond James -- Analyst
Right, and I appreciate the color. And Matt, a couple of your comments kinda leads into my next question. I think that the disclosure and the comments you guys provided on financing costs and sensitivity to rates is well disclosed, I appreciate the color there. But just kinda thinking about how lower rates, maybe at the high level, if you could talk for a second is on the legacy book, I think some people may see their mortgage payments resetting lower depending on what type of product therein and where there rate is; but how is that impacting the performance or delinquency rates of nonagency and legacy RPLs, how does that impact the value of the loans? And maybe talk a little bit about how at the higher level these lower rates are gonna impact, the more credit-sensitive type assets in your portfolio?
Matthew Lambiase -- President and Chief Executive Officer
Well, you know it's an interesting thing. I think lower rates on our balance sheet, we have a very large amount of loans that we consolidate on our balance sheet, and you know that we have calls embedded in all the financings on those deals and if rates trend lower, if we go into a negative environment; which I don't think we are, I think the economy strong, I can't see it happening, but if rates trend lower that means we're gonna be able to call those deals and refinance our debt at lower and lower interest rates. So, I think will be able to keep up and still produce a very high rate of return in a low-interest rate environment because we have all these loans on our balance sheet that we consolidate, and we've embedded calls into all the financings. I think that's a big benefit to our balance sheet that maybe people don't 100% understand.
Steve Laws -- Raymond James -- Analyst
Great, will I appreciate you highlighting that?
Matthew Lambiase -- President and Chief Executive Officer
I think is the performance of the collateral goes, I think lower rates are gonna be beneficial for the borrower. I think it will continue performing as mentioned in the opening remarks, the performance of the legacy assets that we do hold, whether in securities form or in loan form has exceeded our purchase assumptions, and I think lower rates overall will continue to be supportive of that.
Steve Laws -- Raymond James -- Analyst
Great, well thanks a lot for the color on that, Matt. I appreciate you taking the questions.
Operator
Your next question is from Trevor Cranston with JMP Securities.
Trevor Cranston -- JMP Securities -- Analyst
Hi, thanks. You guys gave some good color on investment opportunity in whole loans and specifically on the newer issue investor loans. I was wondering if you could maybe compare contrast which are seeing in the legacy home loan market in terms of how much supply is available right now and how the returns on legacy loans compared to what you see in the newly originated investor loan market? Thanks.
Mohit Marria -- Chief Investment Officer
I'll start that, this is Mohit, Trevor. Legacy space, the RPL space still has seen robust sales out of the GSEs, they have a periodic sale once a quarter, we've already seen the sales for Q3 happen in July. We suspect another $6 billion will come out before year-end. Overall sales in the RPL space for this year are probably gonna be north of $30 billion, is our estimate. So, we think there's gonna be ample supply of that to come as we set on prior earnings calls. So, the opportunity set is still there, the return profile on those loans, given Matt's earlier remarks about different funds chasing assets on the residential side, has put pressure on yields. We think yields on legacy RPL loans are probably low, mid 4%. But if you can finance those two securitizations, we still think it's an attractive opportunity to retain the sub pieces off of those deals, and we think the return profiles on new issue stuff, depending on what pocket you pick, whether it's the investor loans or some jumbo loans, the opportunities there are accretive as well and we think levered returns there on the retained piece would be in double digits as well.
Trevor Cranston -- JMP Securities -- Analyst
Great, OK, thank you. And then on the agency portfolio, obviously, prepayment speeds picked up a healthy amount during the second quarter. Can you maybe comment on where you saw speeds specifically in July and where you see those trending over the next couple months as well?
Mohit Marria -- Chief Investment Officer
Sure. So, speeds in July were slightly slower than what was experienced in June. We think speeds will remain elevated in the near term given one seasonality, given the dip in rates. There's typically about six-week lag from where rates are to what the speeds will be reflective. So, on the bond side, we think near terms speeds are gonna remain elevated August, September, October and then depending on rates and the Fed action, that could carry through for the remainder of the year. But again, posts him or we have more seasonality warehousing turnover will be less in the fall and winter months.
Trevor Cranston -- JMP Securities -- Analyst
Okay, great. Appreciate the comments, thank you.
Operator
Your next question is from Matthew Hallett with Nomura.
Matthew Hallett -- Nomura -- Analyst
Thanks, guys. Just follow up on the whole legacy home loan question. Have you seen a pickup in prepayment speeds on some of those legacy pool or so because of low loan balances then sort of credit impairment nature, is that preventing any sort of refinance activity?
Mohit Marria -- Chief Investment Officer
No, the turnover on our loan portfolio is pretty consistent perspective of the level of rates. But we're still experiencing in a high single-digit between 8 to 10 CPR on the portfolio in the whole, and that's the beauty of the way we've set up the portfolio with a low loan balance and the seasoning. I think both of those are accretive to prepayments.
Matthew Hallett -- Nomura -- Analyst
Is there any level on the fixed-rate mortgage that would come into play or is it just that these are people who have seen rates before and elected not refinance?
Matthew Lambiase -- President and Chief Executive Officer
You know, it's very interesting -- I think the low balance story really plays out here. You have people who don't want to pay the upfront fees to lower their payment by $50 or $60 a month. And right now, you have a mortgage rate of probably 200 to 300 basis points lower than our average mortgage and the portfolio, and these homeowners haven't refinanced just because the upfront costs I think outweigh the benefit, the breakeven benefit and it takes a very long time to get back those upfront costs. And so, it's been very slow; it's been surprisingly even for us to think that they would be prepaying as low as they are. But they have been, and that's been very consistent over the years that we've owned these loans.
Matthew Hallett -- Nomura -- Analyst
Okay, good, that's interesting. Then moving along, on the billion that you referenced in holds, that doesn't include the Freddie, right? The stuff that's coming out? You put that separately, is that correct?
Matthew Lambiase -- President and Chief Executive Officer
No, this is all new purchases that we hope to settle in the next few months and securitize before year-end. This is all brand-new.
Matthew Hallett -- Nomura -- Analyst
So, on the Freddie and the deal you one in the second quarter --
Matthew Lambiase -- President and Chief Executive Officer
They're not brand-new loans; they're RPL's and packages of loans that are new investments to our company.
Matthew Hallett -- Nomura -- Analyst
Okay, but does that include the pipeline that you anticipate winning on the Freddie deals as they come out?
Matthew Lambiase -- President and Chief Executive Officer
No. That would be in addition to that.
Mohit Marria -- Chief Investment Officer
The Freddie Mac deal has been closed. We own it.
Matthew Hallett -- Nomura -- Analyst
Right, but it sounds like that was well bid, you guys won it, what your appetite as these deals come out of Fannie and Freddie to continue bidding on them?
Mohit Marria -- Chief Investment Officer
We like that structure that Freddie Mac has come to market with; we think it's accretive. It takes a lot of the execution risk that we face on other securitizations that we do ourselves, and I think the financing cost offered by the GSEs are very accretive to the sub holders.
Matthew Hallett -- Nomura -- Analyst
Got it, OK. And then just as I hear you correctly on the investor deal that it wasn't consolidated? Just curious and I know it doesn't matter economically speaking, but what can you tell us in terms of deals going forward, whether it'll be grossed up on the balance sheet or whether or not you'll just have the retained piece on your balance sheet and the loans off?
Rob Colligan -- Chief Financial Officer
It depends deal by deal. When we look at it from a consolidation perspective, comes down to what rights we have. It's pretty consistent that agencies and these investor deals, we don't have the rights and typically don't consolidate. But on the RPL deal, NPL deal, things of that nature we generally do.
Matthew Hallett -- Nomura -- Analyst
Great guys and the last question just on you been able to really access the preferred market efficiently the last -- each deal seems like they're getting better than the last one. You can call some of these legacy deals, these legacy preferred, but what's the pipeline for that and even you can call some of the legacy securitizations. So, I'm just curious about what you can do with the existing balance sheet in terms of lowering some of the funding costs?
Mohit Marria -- Chief Investment Officer
Matt, on the security side, as Matt mentioned earlier, we do have calls embedded in all our securitizations and simmer three years in summer four years, so as a decrease in rates go, we have the ability: optimize the financing there. On the preferred side, we have our first one becomes callable in 2021 and depending on the market conditions at the time; we would look to optimize that if it's lower rates at that time coupled with other investment opportunities.
Matthew Hallett -- Nomura -- Analyst
Got it. Okay, great, thanks, guys.
Operator
Once again, if you'd like to ask a question during this time, simply press *1 on your telephone keypad. Your next question is from Jim DeLisle with DeLisle Partners.
Jim DeLisle -- De Lisle Partners -- Analyst
Hi guys. You use the term for the second quarter, I forget what it was exactly, it was challenging, and from the outside it was certainly an interesting quarter and in other calls I've heard people talk about there being kind of a hiccup in the middle of the quarter were agency back spreads even without prepayment risks like dust bonds gapped wider as well and since [inaudible] when in we can follow what's going on with regular pass-throughs and it sounds to me like when you described your Ginnie Mae commercial portfolio, that that is steadily grounded over the quarter. Is that a fair assessment so far?
Mohit Marria -- Chief Investment Officer
Hey Jim, this is Mohit. Yeah, that's a fair assessment. The project loan stops since the start of the year has banded tighter spreads, we are north of 150 at the end of the year, and they're probably around 135ish currently.
Jim DeLisle -- De Lisle Partners -- Analyst
All right. So, trying to connect to what happened there it would seem like, obviously, and this is where it gets really interesting to me, some of the widening of the past certainly could've been expectations of a prepay search. I'm sure some of it was, but that shouldn't affect the dust bond. So, the dust bond and some percentage of the pass-through widening without Ginnie Mae, while Ginny Mae's are tightening, would suggest that there might've been something I kind of heard whisperings of in the middle of the quarter which is a little bit of a concern about the implied government guarantee going away on the agencies. Without also be a fair assessment?
Matthew Lambiase -- President and Chief Executive Officer
You know, I don't know. I wish I had an answer for you on that. I really -- I haven't -- you're the first person who's brought that up.
Mohit Marria -- Chief Investment Officer
And then just talking about dust funds in the spreads on those, I think there was an all-in yield bogey that some long-duration buyers have. Given the retracement of rates overall at the lower yields, I think there was light widening on dust bonds but nothing that material that we noticed in our portfolio.
Jim DeLisle -- De Lisle Partners -- Analyst
Okay, so but I guess I'm hearing is to the people at the tip of the spear, there really was no concern about implied versus explicit credit guarantees on the GSEs this quarter.
Mohit Marria -- Chief Investment Officer
No
Matthew Lambiase -- President and Chief Executive Officer
No.
Jim DeLisle -- De Lisle Partners -- Analyst
Thank you very much.
Operator
And there are no further at this time; I'd like to turn the call back over to Matthew Lambiase for any closing remarks.
Matthew Lambiase -- President and Chief Executive Officer
Well, just like to thank you for participating in our Second Quarter 2019 Earnings Call and will talk to in November, thank you.
Operator
This concludes the Chimera Investment Corp. Q2 2019 Earnings Call; you may now disconnect.
Duration: 38 minutes
Call participants:
Emily Mohr -- Vice President of Investor Relations
Matthew Lambiase -- President and Chief Executive Officer
Mohit Marria -- Chief Investment Officer
Rob Colligan -- Chief Financial Officer
Doug Harter -- Credit Suisse -- Analyst
Eric Hagen -- KBW -- Analyst
Steve Laws -- Raymond James -- Analyst
Trevor Cranston -- JMP Securities -- Analyst
Matthew Hallett -- Nomura -- Analyst
Jim DeLisle -- De Lisle Partners -- Analyst
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