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  • American Capital Agency: Off To The Races? [View article]
    Hi Dividend Living,

    The DTCC GCF Repo Index for MBS last week hit 0.248 which is not very high by historical standards, but is moving off a recent low of 0.025. As you can see in the links below, current rates are still lower than earlier in the year as you pointed out.

    What is not normal however is the recent move in percentage terms, a 10x move!

    This certainly caused problems for short term hedging and pricing models and it is likely that some traders got caught offside on the move, as is always the case with such drastic shifts.

    Whether or not this impacted AGNC, I have no idea. They have some smart guys and maybe even made some money on this, but it is also possible they took a hit.
    Oct 18, 2013. 01:37 PM | 1 Like Like |Link to Comment
  • American Capital Agency: Off To The Races? [View article]
    While I agree that the move down in longer term rates is likely to positively impact the value of AGNC's MBS portfolio, the recent volatility in the short term REPO markets likely cut into profits on the funding side of the equation.

    The political stand off in Washington has wrecked havoc in short term funding markets in recent weeks. The impact was felt the mostly in T-Bill and other money markets instruments, but other debt sectors were not left unscathed.

    Like all mREIT's, AGNC's business model is dependent on the REPO market to fund portfolio purchases, and generate leverage. While AGNC has a sophisticated hedging strategy in place, volatility always makes borrowing more expensive, thus cutting into profits.

    We won't know the impact of this chaos in the funding markets until earnings are released, and it may not end up being significant, but it could also impact earnings if proper hedges were not in place. REPO rates certainly have been higher in the past, but recently spiked off very low levels.

    Also worth taking into account is that Washington will be back to front and center early in the new year, and is likely that another round of political wrangling will once again bring volatility and thus increase mREITs cost of doing business.
    Oct 18, 2013. 12:23 PM | 2 Likes Like |Link to Comment