Digging through the SEC filings of Two Harbors Investment Corp (TWO), I noticed a fairly dramatic shift towards fixed-rate agency bonds in their RMBS portfolio over the past two years.
And to see the relationship more closely, here's a line chart with the same data:
You can see in the chart above how the red line (fixed rate agency securities) has gone from a lower-point on the graph (at 23%) and slowly worked its way near the top (78%).
This is one reason I have favored TWO over other mREITs, as I expect the yield curve to flatten further, which should be more beneficial to mREITs holding fixed-rate debt securities. Interestingly enough, this makes TWO look more like Annaly Capital (NLY), as far as agency composition goes.
While NLY focuses more exclusively on agency RMBS (compared to TWO, which has about a 17% exposure to non-agency), TWO and NLY do not look dramatically different in terms of agency holdings. 93.4% of TWO's agency holdings are now fixed-rate, while 89.2% of NLY's are fixed-rate.
TWO's dividend yield is currently at 16.5%, while NLY's is at 14.5%. According to Yahoo Finance, TWO currently sells right at book value, while NLY sells at a slight premium with a P/B ratio of 1.08. While I like both NLY and TWO right now, I slightly favor TWO due to what I perceive as a slightly more attractive price, coupled with much higher insider buying. I also like TWO's more flexible strategy. The one downside, in my view, is that NLY has a more established long-term track record, while TWO is still fairly new to the mREIT game. Either way, I favor both TWO and NLY over mREIT holdings with a significant concentration in variable-rate securities.