UPDATE: Bank of America Upgrades CYS Investments to Neutral, Raises PT on Lower Rate Risk

In a report published Friday, Bank of America analyst Kenneth Bruce upgraded the rating on CYS Investments (NYSE: CYS) from Underperform to Neutral, and raised the price target from $7.50 to $8.50.In the report, Bank of America noted, “We are upgrading CYS Investments to Neutral from Underperform as the downside risk from higher interest rates is largely factored into CYS at this time, in our view. Given an attractive 13% expected dividend yield, we think investors can achieve a positive total return, despite the elevated risk of rising long-term interest rates. CYS significantly reduced its interest rate exposure in Q3 by reducing leverage to 6.5x from 7.5x QoQ and selling rate sensitive investments, suggesting less downside risk to net asset value, based on our projections. With rates biased higher, despite the recent rally and talks of a protracted QE3 stimulus, investors will likely continue to discount valuations on mortgage REITs, like CYS. This limits potential upside from here, in our view. Still, CYS has reduced its rate exposure and is likely to enjoy an 8% total return over the next 12 months.”CYS Investments closed on Thursday at $8.68.