CYS Investments 8-K KBW Mortgage Finance Conference

Kevin Grant

Chief Executive Officer

KBW Mortgage Finance Conference

June 3, 2014

Exhibit 99.1

Investment Outlook

Forward-Looking Statements

This

presentation

contains

forward-looking

statements,

within

the

meaning

of

Section

27A

of

the

Securities

Act

of

1933,

as

amended,

and

Section

21E

of

the

Securities

Exchange

Act

of

1934,

as

amended,

that

are

based

on

management’s

beliefs

and

assumptions,

current

expectations,

estimates

and

projections.

Such

statements,

including

information

relating

to

the

Company’s

expectations

for

distributions,

availability

and

cost

of

financing,

scalability

of

management,

market

conditions,

monetary

policy,

return

on

equity,

the

yield

curve,

the

economy,

interest

expense,

affordability

of

housing,

movements

in

interest

rates,

governmental

actions,

the

performance

of

the

Company’s

target

assets,

the

impact

of

current

Federal

Reserve

voters

on

certain

policies

of

the

Federal

Reserve,

the

policy

views

of

central

banks,

and

the

size

of

the

mortgage

market

are

not

considered

historical

facts

and

are

considered

forward-looking

information

under

the

federal

securities

laws.

This

information

may

contain

words

such

as

“believes,”

“plans,”

“expects,”

“intends,”

“estimates”

or

similar

expressions.

This

information

is

not

a

guarantee

of

the

Company’s

future

performance

and

is

subject

to

risks,

uncertainties

and

other

important

factors

that

could

cause

the

Company’s

actual

performance

or

achievements

to

differ

materially

from

those

expressed

or

implied

by

this

forward-

looking

information

and

include,

without

limitation,

changes

in

the

market

value

and

yield

of

our

assets,

changes

in

interest

rates

and

the

yield

curve,

net

interest

margin,

return

on

equity,

availability

and

terms

of

financing

and

hedging,

the

likelihood

that

proposed

legislation

is

made

law

and

the

anticipated

impact

thereof,

actions

by

the

U.S.

government

or

any

agency

thereof,

including

the

Federal

Reserve,

and

the

effects

of

such

actions

and

various

other

risks

and

uncertainties

related

to

our

business

and

the

economy,

some

of

which

are

described

in

our

filings

with

the

SEC.

Given

these

uncertainties,

you

should

not

rely

on

forward-looking

information.

The

Company

undertakes

no

obligations

to

update

any

forward-looking

information,

whether

as

a

result

of

new

information,

future

events

or

otherwise.

2

CYS Overview

Focus on Cost

Efficiency

Target Assets

Agency Residential Mortgage Backed Securities

A Real Estate Investment Trust Formed in January 2006

Ample Financing

Sources

Financing lines with 38

lenders 

Swap agreements with 18 counterparties

Dividend Policy

Self managed: highly scalable

Senior

Management

Kevin Grant, CEO, President, Chairman

Frances Spark, CFO

Company intends to distribute all or substantially all of its REIT

taxable income

3

Significant Cheapening of Agency MBS Market

15 Year: Hedged vs. Unhedged

15 Year Fixed Hedged with Swaps: April 2009 –

May 2014

15 Year Hedged

(i)

15 Year Unhedged

(ii)

Borrow Short

Invest Long

May 30, 2014

4

Source: Bloomberg.

Note:

Spreads

calculated

as:

(i)15

year

CC

Index

=

50%

4

year

swap,

and

(ii)

15

year

Current

Coupon

Index

Significant Cheapening of Agency MBS Market

30 Year: Hedged vs. Unhedged

Source: Bloomberg

Note:

Spread

calculatedas:

(i)

30

year

CC

Index

-

90%

5

year

swap

30 Year Fixed Hedged with Swaps: April 2009 –

May 2014

Borrow Short

Invest Long

30 Year Hedged 

30 Year Unhedged

May 30, 2014

5

Volatility in the Cap/Floor Markets Hit a

Low in July 2013

30 Yr MBS -

15 Yr MBS Spread

7 Yr Cap/Floor Implied Vol

November 2012 –

May 2014

April  2012 –

May 2014

30 Year MBS Cheapened Meaningfully

Relative to 15 Year MBS

5 Year Swap vs. Fed Funds

January 2005 –

May 2014

Yield Curve

Creates positive carry

Very low cost of financing

Good ROE

Hedge flexibility very important

Fed still fighting deflation

30 Year MBS Now Priced for Operation Taper

and Tightening Monetary Policy 2015

May 30, 2014

May 30, 2014

6

May 30, 2014

Source: Bloomberg

Source: Board of Governors of the Federal Reserve, March 19, 2014

Actual Economic Performance:

Sluggish vs. Fed Projections

7

Appropriate Timing

of Policy Firming

•

Creates Significant Headwinds for the Economy

•

Housing Will Struggle

•

Corporate Interest Expense will rise

Appropriate Pace

of Policy Firming

Target Fed Funds Rate at Year End

Overview of FOMC Participants Assessments

of Appropriate Monetary Policy

Can the Economy Withstand

The Implied Path of 10 Year UST?

•

Forward Rate Guidance is the Fed’s Most Impactful Tool

•

Appropriate Timing and Pace will drive the Yield Curve

1.00

2.00

3.00

4.00

5.00

6.00

0.00

2014

2015

Longer

Run

%

Source: Federal Reserve March 2014  Forecast, Bloomberg, CYS

2016

Transition to a Normalized Yield Curve:

Will the Fed Push Out Forward Rate Guidance?

8

Ten Year Treasury

August 2011  -

May 2014

and Implied Projection

%

2014-15 Fed Voters:

New Perspectives, Changing Outlooks 

Powell

Source: federalreserve.gov, Barclays, Macroeconomic Advisers, LLC,  Bank of America Merrill Lynch, Bloomberg, Wall Street Journal, Indiana University,  Marketwatch, Thomson Reuters, Federal Reserve

Bank of Atlanta, Federal Reserve Bank of Chicago, Federal Reserve Bank of Cleveland, Maryland Consumer Rights Coalition, Boston Globe, Businessweek, Newsweek, Washington Post, CNBC.

Dallas:

Fisher

Minneapolis:

Kocherlakota

Philadelphia:

Plosser

Hawkish

Dovish

Neutral

2014

Voters

Yellen

Fed governors are appointed by the president and subject to Senate confirmation.

District

bank

Fed

presidents

are

chosen

by

their

individual

banks’

Boards

of

Directors

with

a

degree of oversight from the Federal Reserve Board.

Raskin’s Successor

Cleveland:

Mester

Board of

Governors

2015

Voters

New York:

Dudley

Chicago:

Evans

Richmond:

Lacker

Atlanta:

Lockhart

San Francisco:

Williams

Fischer

Brainard

Tarullo

Stein’s Successor

New York:

Dudley

9

Central Banks:

Decidedly More Accommodative -

Focus on Global Deflation Risk

Draghi

EU

Hawkish

Dovish

Neutral

Xiaochuan

China

Xiaochuan

China

Tombini

Brazil

Tombini

Brazil

Australia

Stevens

Australia

Stevens

New Zealand

Wheeler

New Zealand

Wheeler

Kuroda

Japan

Canada

Poloz

Rajan

India

Kuroda

Japan

Carney

UK

Yellin

USA

10

GSE Reform Headway

Source: Barclays, CYS

11

Economic Recovery Below Normal Pace

U.S. Regular Conventional Gas Price

$ per gal

Updated: 2014-05-26

Capacity Utilization: Manufacturing

Updated: 2014-05-15

Civilian Unemployment Rate

Updated: 2014-05-02

CPI-U All Items, Core

Updated: 2014-05-15

Total Nonfarm Private Payroll Employment

Updated: 2014-04-30

Total Unemployed + All Marginally Attached + Total

Employed Part Time for Economic Reasons

Updated: 2014-05-02

Source: Federal Reserve Bank of St. Louis

12

Housing Finance Has Not Rebounded

Source: CoreLogic, FHFA, S&P, Bloomberg, Barclays Research, National Association of Realtors, US Census Bureau, MBA, Inside Mortgage Finance

Share of Government Guaranteed Mortgages

1990 –

2013

New and Existing Homes Months of Supply

January 1999-

April 2014

Home Ownership Rate

Jan 1990  -

present

13

New Homes

Existing Homes

Mortgage Market Shrinkage Likely to Continue

Source:  FRB, Freddie Mac

Mortgage Debt

Outstanding

2007 -2013

Mortgage Debt Outstanding

Growth Rate

0.00%

0.50%

1.00%

9.75

10.00

10.25

10.50

10.75

11.00

11.25

11.50

1.50%

2.00%

3.50%

4.00%

4.50%

0.50%

2.00%

1.50%

1.00%

9.50

8.75

9.00

9.25

Single Family

Mortgage Origination Volume

2000  -

2015E

0

14

2000

2005

2010

2012

2013

Est.

2014

Fcst.

2015

Fcst.

1,000

2,000

3,000

4,000

Refinance Originations

Home Purchase Originations

1.9T

1.3T

1.1T

1.

Home prices now reset lower

2.

Delevering Consumers/Homeowners

3.

Psychology of lower leverage

4.

Low volume of new and existing home sales

5.

All-cash home purchase transactions, and higher downpayments

6.

Scheduled principal payments

7.

High percentage of cash-in refi’s versus cash-out refi’s.

8.

QM Rules Restrictive

Residential Mortgage Debt Decline Driven By

Economics of Forward Purchase

Source: Bloomberg, May 30, 2014

15

1

As of  3/31/14

$ in 000’s

Note:

the

December

2012

dividend

was

composed

of

$0.40

quarterly

cash

dividend,

and

$0.52

special

cash

dividend.

Fair Value of Total Agency RMBS and U.S. Treasuries: $13,307,735

CYS Common Stock Dividends

September

2009

–

March

2014

CYS Agency RMBS and U.S. Treasury Portfolio

1

Portfolio Composition and Dividends

16

CYS Agency RMBS and U.S. Treasury Portfolio Characteristics*

Portfolio Characteristics

Face Value

Fair Value

Weighted Average

Asset Type

(in thousands)

Cost/Face

Fair Value/Face

Yield

(1)

Coupon

CPR

(2)

15 Year Fixed Rate

$   6,227,169

$   6,432,461

$ 102.58

$               103.30

2.31%

3.13%

5.6%

20 Year Fixed Rate

81,294

87,371

103.04

107.48

1.94%

4.50%

11.5%

30 Year Fixed Rate

3,149,975

3,263,950

103.24

103.62

3.32%

3.96%

4.1%

Hybrid ARMs

(3)

1,946,543

1,986,641

103.55

102.06

1.98%

2.56%

9.5%

U.S. Treasury Securities

1,550,000

1,537,312

99.61

99.18

1.68%

1.50%

NA

Total

$  12,954,981

$  13,307,735

$  102.53

$                102.72

2.43%

3.06%

6.1%

17

(1)

Drop Income is a component of our net realized and unrealized gain (loss) on investments on our consolidated statements

of operations, and is therefore excluded from Core Earnings.

(2)

Core Earnings is defined as net income (loss) available to common shares excluding net realized gain (loss) on investments,

net unrealized gain (loss) on investments, net realized gain (loss) on termination of swap and cap contracts and net

unrealized gain (loss) on swap and cap contracts.

Financial Information

Income Statement Data

Three Months Ended

(In thousands, except per share numbers)

3/31/2014

12/31/2013

Total interest income

$84,367

$91,743

Interest expense

28,346

32,814

Net interest income

56,021

58,929

Other income (loss):

Net realized gain (loss) on investments

16,670

(22,650)

Net unrealized gain (loss) on investments

89,234

(167,671)

Net realized gain (loss) on termination of swap and cap contracts

(9,323)

(10,891)

Net unrealized gain (loss) on swap and cap contracts

(16,240)

54,633

Other income

119

-

Total other income (loss)

80,460

(146,579)

Total operating expenses

5,794

4,214

Net income (loss)

$          130,687

$           (91,864)

Dividends on preferred stock

(5,203)

(5,203)

Net income (loss) available to common shares

$          125,484

$           (97,067)

Net income (loss) per common share basic & diluted

$                  0.78

$               (0.59)

Drop income per common share (diluted)

(1)

$                  0.07

$                  0.07

Core Earnings per common share (diluted)

(2)

$                  0.28

$                  0.31

Distributions per common share

$                  0.32

$                  0.32

Non-GAAP Measure/Reconciliation (in 000's)

NET INCOME (LOSS) AVAILABLE TO COMMON SHARES

$          125,484

$           (97,067)

Net realized (gain) loss on investments

(16,670)

22,650

Net unrealized (gain) loss on investments

(89,234)

167,671

Net realized (gain) loss on termination of swap and cap contracts

9,323

10,891

Net unrealized (gain) loss on swap and cap contracts

16,240

(54,633)

Core Earnings

$            45,143

$            49,512

18

The table above includes calculations of the Company’s Agency RMBS and U.S. Treasury Securities portfolio (“Debt Securities”)

1)

The average settled Debt Securities is calculated by averagingthe month end cost basis of settled Debt Securities during the period.

2)

The average total Debt Securities is calculated by averaging the month end cost basis of total Debt Securities during the period.

3)

The average repurchase agreements are calculated by averaging the month end repurchase agreements balance during the period.

4)

The average Debt Securities liabilities are calculated by adding the average month end repurchase agreements balance plus average unsettled Debt Securities during the period.

5)

The average stockholders' equity is calculated by averaging the month end stockholders' equity during the period.

6)

The average common shares outstanding are calculated by averaging the daily common shares outstanding during the period.

7)

The leverage ratio is calculated by dividing (i) the Company's

repurchase agreements balance plus payable for securities purchased minus receivable for securities sold by (ii) stockholders' equity.

8)

The average yield on Debt Securities for the period is calculated by dividing total interest income by average settled Debt Securities.

9)

The average yield on total Debt Securities including Drop Income for the period is calculated by dividing total interest income plus Drop Income by average total Debt Securities.

10)

The average cost of funds and hedge for the period is calculated by dividing interest expense by average repurchase agreements.

11)

The adjusted average cost of funds and hedge for the period is calculated by dividing interest expense by average Debt Securities liabilities.

12)

The interest rate spread net of hedge for the period is calculated by subtracting average cost of funds and hedge from average yield on settled Debt Securities.

13)

The interest rate spread net of hedge including Drop Income for

the period is calculated by subtracting adjusted average cost of funds and hedge from average yield on total Debt Securities including Drop Income.

14)

The operating expense ratio for the period is calculated by dividing operating expenses by average stockholders' equity.

* All percentages are annualized.

Financial Information

(in thousands)

Three Months Ended

Key Balance Sheet Metrics

March 31, 2014

December 31, 2013

Average settled Debt Securities

(1)

$12,472,238

$13,024,294

Average total Debt Securities

(2)

$13,454,972

$14,293,267

Average repurchase agreements

(3)

$10,867,627

$11,384,159

Average Debt Securities liabilities

(4)

$11,850,361

$12,653,132

Average stockholders' equity

(5)

$1,861,121

$1,896,360

Average common shares outstanding

(6)

161,831

163,850

Leverage ratio (at period end)

(7)

6.32:1

6.97:1

Key Performance Metrics*

Average yield on settled Debt Securities

(8)

2.71%

2.82%

Average yield on total Debt Securities including Drop Income

(9)

2.85%

2.93%

Average cost of funds and hedge

(10)

1.04%

1.15%

Adjusted average cost of funds and hedge

(11)

0.96%

1.04%

Interest rate spread net of hedge

(12)

1.67%

1.67%

Interest rate spread net of hedge including Drop Income

(13)

1.89%

1.89%

Operating expense ratio

(14)

1.25%

0.89%

19

Kevin Grant

Chief Executive Officer

KBW Mortgage Finance Conference

June 3, 2014

*

*

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*

Investment Outlook